The S&P 500 gained 0.4% on Monday, closing just shy of its record high, while the Nasdaq 100 advanced 1.3%, surpassing the 22,000 mark for the first time.
Leading the gains were Tesla (+6%) and Broadcom, which climbed 11.2% after crossing a $1 trillion market valuation last week.
MicroStrategy finished marginally in the red ahead of its inclusion in the Nasdaq 100, whereas Super Micro Computer dropped 8.2% as it prepared to leave the index.
However, the Dow Jones slipped 110 points, extending its losing streak to eight sessions, dragged down by UnitedHealth Group (-4.2%) amid growing scrutiny and legislative pressures following the passing of its insurance unit CEO.
Attention now shifts to the Federal Reserve, with a 25-basis-point rate cut widely expected on Wednesday.
On Friday we talked about the synchronised global easing cycle (here).
Major global central banks responded, in coordination, to the global health crisis.
They responded, in coordination, to the subsequent inflation.
Over the past year, they've responded, in coordination, to the disinflationary trend.
So, global policy making has been intentionally synchronised, and that includes Japan — which served a very important role as the global liquidity provider (with QE + negative rates) as the rest of the world was inflation fighting.
Now Japan is attempting to "normalise" policy, as the rest of the world is easing.
But as we also discussed, while monetary policy has converged, the economic outlook within this consortium of major central banks/ leading countries has diverged. And if we simply use consumer and business confidence as our gauge, the divergent economic outlook has come from diverging structural agendas (structural policy).
The U.S. has had a populist political shakeup, and that catalyst for change has infused confidence in the U.S. economic outlook.
It's a new roadmap with the chart above highlighting the impact (i.e. divergence in government policy paths = divergence in economic outlook).
And as I suggested in Friday’s note, this divergence doesn't close without a catalyst, and that catalyst might come in the form of a populist political shakeup in Europe.
We've seen the Macron government fall in France over the past two weeks. And yesterday afternoon, the screws were turned on Scholz in Germany. He lost a confidence vote. The Germans will have a snap election likely in late February to determine what might be a new political landscape.
In Canada, Trudeau's government lost two key cabinet members to resignation (Finance Minister and Housing Minister), and a no confidence vote looks likely early next year.
This is beginning to look like the 2015-2016 populist pushback that delivered Grexit, Brexit and the Trump vote. The people want freedom from the globalist agenda, and they want sovereignty restored.
In Europe, if the political dominoes fall in the coming months, it will come with complicated financial risk — a reversion to nationalist governments in Europe would be a clear threat to the future of the euro (the common currency).
