“Men who can be right and sit tight are uncommon” — Jesse Livermore
1. China Names New Finance Chief — China has appointed a new finance minister, Xiao Jie, as concerns grow over the country’s rising fiscal deficits and mounting debt, which has jumped to more than 250% of GDP. WSJ reports China is also considering allowing Wall Street banks to run their own investment-banking businesses on the mainland, dropping a requirement for U.S. banks to operate as minority partners in local joint ventures.
2. Commerce Department Opens New Chinese Steel Probe — the U.S. Commerce Department has formally opened a China steel tariff-dodging probe. A petition filed in September by ArcelorMittal (MT), Nucor (NYSE:NUE), AK Steel (NYSE:AKS) and U.S. Steel (NYSE:X) alleged that Chinese steelmakers shipped metal to Vietnam, made enough changes to it that they could then classify it as Vietnamese, and then shipped it to the U.S. under lower tariffs.
3. S&P Affirms U.S. Credit Ratings — Standard & Poor’s has given the all-clear to America’s credit rating, affirming it at ‘AA+’ with a stable outlook. “We assume the longstanding institutional strengths and robust checks and balances of the U.S. will support policy execution in a Trump administration, despite the president-elect’s lack of experience in public office,” the ratings agency said. Moody’s announced in September the election wouldn’t impact its ‘AAA’ rating for the U.S.
4. Trump Claims Victory Amid Roiling Markets — Donald Trump has been elected the 45th president of the United States, beating his opponent Hillary Clinton as well as a raft of pre-election polls. “Now it’s time for America to bind the wounds of division,” he said in a victory speech, calling on all Americans to come together. The GOP also kept control of both the Senate and the House, giving the party greater freedom to implement its policy platform.
— Donald Trump’s victory sets the stage for a series of radical policy reversals both at home and abroad. –
Banks: the core assumption the Fed will raise interest rates soon and follow with further gradual hikes over coming years will be called into question. Trump wants to spur bank lending by dismantling Dodd-Frank regulations.
Auto Sector & Trade: the industry has bet billions of dollars on globalized production and higher fuel efficiency, but Trump has been talking about moves to effectively re-shore jobs to the United States and has called climate change a hoax. The president-elect also opposes the Trans-Pacific Partnership and called for fundamental changes to the NAFTA pact with Mexico and Canada. Related stocks: TM -3.9%, F -1.1%, GM -0.4%, FCAU -0.4%, HMC, OTCPK:NSANY, OTCPK:VLKAY, OTCPK:DDAIF, OTC:HYMLF, OTCPK:BAMXF, TTM
Healthcare: the weakest sector this year may become winners as Obamacare reforms are set to be “repealed and replaced” and major legislation Clinton proposed is unlikely to be imposed on drugmakers. While Trump hasn’t set out a comprehensive alternative to the Affordable Care Act (which may see 22M Americans lose current coverage), he said he’ll encourage competition between markets in different states. Related tickers: MYL +5.8%, NVS +3.4%, SNY +2.9%, AZN +2.4%, GSK +1.9%, PFE +1.8%, CELG +1%, ABBV, MRK, BMY, LLY, JNJ, ABT, ACET, ZTS, BIIB, REGN, UNH, AET, ANTM, CI, HUM, WCG, CNC, MOH, GTS, HQY
Defense: Trump has called for eliminating the sequester on defense spending and initiate a military buildup, boosting troop levels and the number of ships and aircraft. He seeks to fully offset the cost through “common sense reforms that eliminate government waste and budget gimmicks” and from additional payments from countries where the U.S. has military bases, including Germany, Saudi Arabia and Japan. Related tickers: LMT +4.5%, RTN +1.7%, GD, BA, NOC, OA, HII, HON, UTX, ITT, TXT, LLL, COL
Tax Policy: Trump also call for a repatriation holiday of 10% for the more than two trillion dollars in corporate cash parked overseas is now closer to reality. He has also promised the biggest tax revolution since Ronald Reagan, pledging that no American business would pay more than 15% of their profits in tax, compared with a current maximum of 35%. Top 10 U.S. companies with cash overseas: MSFT -2.1%, GE -1.5%, AAPL -1.7%, PFE +4.5%, IBM -1.1%, MRK +1.5%, GOOG -2.2%, GOOGL -1.7%, CSCO -2.2%, JNJ, XOM
Immigration: One of the biggest beneficiaries might be Mexican cement company Cemex (NYSE:CX). Trump has campaigned to build a wall on the Mexican border and immediately begin the process of deporting illegal immigrants with criminal records. Private prison and detention center stocks are also getting a big boost.
The week ahead — Economic data from Econoday.com: