Populist Uprising

The Populist Party was not officially on any ballot yesterday, but make no mistake, populism won the election. As an official political party, the Populists reached their zenith in the 1890s. It was merged into the Democratic Party in 1896. Today, it can be found wearing a Republican badge; although, the Bernie Sanders style of populism has been tucked inside the Democratic Party for now.

Wikipedia states, “Populism is a political ideology that holds that virtuous citizens are mistreated by a small circle of elites, who can be overthrown if the people recognize the danger and work together. Populism depicts elites as trampling on the rights, values, and voice of the legitimate people.”

Sound familiar? Our country was spawned by populist discontent with the foreign-installed royal government, leading to the American Revolution. More recently, the populist concept resonated with Great Britain’s Brexit vote in June when the people demanded the country’s exit from the perceived elitist organization known as the European Union.

Whether you refer to it as an uprising or a regime change, the goal is to alter the status quo. The change will likely result in vast reductions of the bloated budgets for many government agencies, while others will see increases. Corporations, both large and small, should benefit from a reduced and overhauled tax code. However, if they have moved all of their manufacturing jobs to other countries, then the populist changes may be more difficult to swallow.

The market’s initial knee-jerk reaction to surprise events is often at odds with the longer-term realities. Futures on the Dow Jones Industrial Average were down 800 points yesterday evening as the probability of a Trump upset became evident. But, just as the pollsters got it all wrong about the election, the futures market got it all wrong about today’s stock market action. Instead of cratering at the open, the Dow was up in early trading and was more than 300 points higher later in the day.

The Financials sector was the top-performing sector mid-afternoon today. Health Care was also seeing great gains, especially within the biotechnology and pharmaceutical industries. Infrastructure stocks should perform well under the new regime, but today the results are mixed. Defensive groups, such as Utilities, Consumer Staples, U.S. Treasury securities, and even gold bullion are trading lower. If this election cycle teaches us anything, it would be not to put too much faith in predictions.

The pre-election bounce of Monday and Tuesday did much to repair the momentum losses of last calendar week. As a result, most sectors are showing an improvement from a week ago, and today’s split market action will likely create further dispersion in the results. Financials took the top spot away from Technology, which had to settle for second place today. Last week, these were the only two sectors in green, but today Industrials and Materials join them. This movement pushed Utilities, Energy, and Consumer Staples all two notches lower. Telecom, Health Care, and Real Estate remain deeply in the red, with Real Estate now supplanting Health Care on the bottom.

High Beta continues to reign over the factor rankings, thanks to its strong bounce of the past two days. However, by definition, the category is extremely sensitive to market movements, and if stock prices reverse direction again, it will too. Value, Fundamental, and Market Cap held their positions, but Value managed to inch into positive momentum territory. Quality and Momentum swapped places, as did Growth and Yield. Last week, Size was sinking fast, and today it completed its two-week journey from second place to last. With Size now on the bottom, Dividend Growth and Volatility climbed slightly higher.

Latin America remains firmly atop the global rankings. It fell last week, then surged on Monday and Tuesday, only to fall again today. Anything displaying that much momentum will have bouts of volatility, and we are certainly seeing that now. Japan, Emerging Markets, and China lag far behind the leader, but continue to stay in the green. Pacific ex-Japan moved two spots higher, pushing Canada and the Eurozone lower. World Equity and the U.S. moved ahead of EAFE, and the U.K. is still alone on the bottom.

“It’s tough to make predictions, especially about the future.”

—Yogi Berra

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