Searching for a Catalyst.

• US stocks fell on Thursday afternoon, with the S&P 500 losing 0.3% and the Nasdaq and Dow Jones each dropping around 0.4%, the latter marking its fifth consecutive decline.

• A hotter-than-expected November producer price index raised concerns about persistent inflation, tempering hopes for swift interest rate cut guidance from the Federal Reserve.

• Tech stocks led the losses, with Nvidia falling over 1% and Adobe tumbling more than 13% on a weak revenue outlook.

• Traders also assessed a sharp rise in initial jobless claims to 242K, nearly a two-month high and above the 220K forecast, bolstering expectations for a Fed rate cut next week.

• The odds of a 25bps reduction in the fed funds rate currently stand at 94%.

On Wednesday we talked about the Trump effect on the NFIB's Small Business Optimism Index (here). It was a repeat of 2016. The spike in the November reading broke a streak of 34 consecutive months UNDER the 50-year average for the index.

Also on Tuesday, the Business Roundtable, an association of more than 200 CEOs of America's leading companies, representing every sector of the U.S. economy, released its survey and update to its CEO Economic Outlook Index.

This is big corporate America. This index spiked too, "above its long-run average for the first time in nine quarters." Plans for hiring, investing and expectations for sales all jumped.

On Monday the New York Fed released a survey of consumer expectations. This gives us a gauge on how consumers are feeling post-election. The year-ahead expectations on household financial situation "improved considerably in November."

The share of householders surveyed expecting a better financial situation a year from now rose to its highest level since February of 2020 (just before the pandemic).

This enthusiasm about the economic outlook was clear and on display at the New York Stock Exchange, with a crowd of corporate executives on hand to watch Trump ring the bell to open markets.

Now, let's take a look at this chart below of U.S. stocks (light green) vs. German stocks (dark green) and talk about the contrast with what's going on in Europe.

And as you can see, from October of last year, when Jerome Powell signalled the end of the tightening cycle in the U.S., the two stock markets have tracked closely — on the tailwinds of a synchronised global easing cycle.

That said, yesterday morning the European Central Bank cut rates again — now down 100 basis points since April, in response to the disinflation trend. And by next week, the Fed will likely have taken the Fed Funds rate down by 100 basis points (total) in this easing cycle.

But for the respective stock markets, the economic picture is very different.

The U.S. economy is growing at better than 3% over the past two years. The eurozone economy is growing at a sub-1% rate over the past six quarters.

And the Trump effect won't work for Europe in the same direction that it's working for the U.S. outlook. With that said, confidence measures in Europe (dark green) are 32 consecutive months below the 20-year trend, and with no positive catalyst ahead.

With this, we should start to see divergence between the performance of U.S. stocks and European stocks, at least until a positive catalyst emerges.

What might that positive catalyst be? A populist political shakeup in Europe.