In my research, I have found that market narratives inspire periodic, cyclical and seasonal regularities in asset prices at certain times, such as the January and October effects.
The end of the year is typically a time when investors review markets afresh and discard old narratives for new ones. It is a time for the Harris Law of Quarterly Reversals to come into its own. It describes how markets often change course at the end of a financial quarter – sometimes up, sometimes down or sometimes not at all.
The last few months have spawned new narratives that may trigger a change of course – the biggest one being Donald Trump’s victory in the US presidential election. The world has been watching how Trump behaves in the political arena for at least nine years now. He is well known and nothing he says or does should be a surprise. He is an isolationist, vain and right-wing bully who announces policy on social media.
World leaders are already playing to his preening ego. Trump 2.0 will be unbounded by the key checks and balances of the republic since Republicans control the executive and the legislature and there is a conservative majority in the Supreme Court. That lack of control is his weakness.
His TV cabinet – several of his nominees are former television hosts – might as well be “all the president’s yes men”, chosen for their loyalty and not their competence. Few have the specialist knowledge or skills needed to run their departments, some of which Trump wants to dismantle.
Trump will almost certainly replace Jerome Powell as chairman of the US Federal Reserve Board and nominate a candidate who, like him and his Treasury secretary nominee – a hedge fund manager – will try to force down short-term interest rates.
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