It’s So Easy

It is an increasing comment point being made in the financial news media as of late. The European and Japanese economies are showing signs of notably improving economic growth that in some respects is outpacing that of the United States. This is fantastic and long overdue for those across the European continent and in Japan that have been struggling with below trend growth for so many years. But the question remains. What has been driving this growth outperformance? And is it sustainable?

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2 Down, 2 To Go

It has been an exciting year for politics across the European Union. Following the stunning decision by the United Kingdom to depart from the common market in June 2016, all eyes turned to the up to four elections slated to take place in 2017 to see if the populist and nationalist wave would spread across the continent. And while candidates from the far-left and far-right have certainly made their presence felt during the first two major elections, more centrist leaders have managed to claim power, albeit in unusual ways. Whether populist and nationalist sentiments will remain contained with the remaining two elections remains to be seen, however. And this ongoing uncertainty will have important implications for global financial markets.

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Losing Control

Investors worried for years during the post crisis period about Fed policy. All along the way, investors hung on their every word, and the Fed utilized this control by trying to micromanage the markets in an effort to spark a sustained economic recovery. But after years of relentless stock market gains, the bulls have become so intoxicated by the seemingly endless rise in the U.S. stock market that they seem to no longer really care about the monetary policy committee that had them so anxious for so many years. As a result, it appears that the Fed and other global policy makers are not only falling increasingly behind the curve in tightening monetary policy but may also be losing control over markets altogether.

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Stock Revolution 9

Capital markets are taking distortion to a whole new level. On Monday, the U.S. stock market achieved an even greater level of placidity, as the CBOE Volatility Index for the S&P 500 closed with a “9” handle for the first time in more than a decade. It also fell to its lowest level in history based on its current construction. This suggests that investors are feeling as confident as they ever have about the U.S. stock market remaining calm and volatility remaining low into the future. Is this investor calm truly a product of market harmony? Or is it simply an ominous byproduct of excessive policy crosscurrents that may ultimately send investors on another wild loop.

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Big Win For The Bulls

A development has just surfaced for U.S. stocks that is about as rare as a snow leopard sighting. And the timing of its emergence from the financial wilderness marks a big win for the bulls in keeping the post-crisis stock market rally intact. While it is an exciting turn of events and represents a good first step, investors will need to see a lot more snow leopards in the months ahead to help lift stocks off of their lofty valuation perch.

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