Trump stocks rally could per­sist, say an­a­lysts

Kuwait Times - - BUSINESS -

Don­ald Trump’s shock win of the US pres­i­dency sparked a sur­pris­ing rally on Wall Street this week that some be­lieve could be a prelude to fur­ther gains. The re­sponse, which sent the Dow Jones In­dus­trial record to all-time highs on Thurs­day and Fri­day, re­flected ex­pec­ta­tions that pro-business poli­cies and rampedup pub­lic works spend­ing would spur greater eco­nomic growth.

Traders also shrugged off the wor­ries many talked about prior to the elec­tion, in­clud­ing ques­tions about the Repub­li­can mogul’s tem­per­a­ment and his pro­tec­tion­ist trade poli­cies. An­a­lysts said the mar­ket’s op­ti­mistic re­sponse was rea­son­able, but that there are also risks ahead. “There’s a lot of ex­pec­ta­tions built into this rally,” said Jack Ablin, chief in­vest­ment of­fi­cer at BMO Pri­vate Bank. But he said that for stocks to go higher, com­pa­nies will have to show much stronger profit and rev­enue growth.

The Dow had its best week in five years, end­ing Fri­day at 18,847.66, to take its gain since Jan­uary above 8 per­cent. The broader S&P 500, pulled down by en­ergy stocks, was still about 1 per­cent below its all-time high. That was a far cry from the cat­a­clysmic re­ac­tion to a Trump up­set that some an­a­lysts pre­dicted.

“I ex­pected a Brexit-like pull­back on an un­likely Trump vic­tory be­cause I felt that sell­ing would be fu­elled by emo­tion,” Ablin said. “It seems that just op­po­site type of emo­tion may be be­hind some of the buy­ing.” An­a­lysts at­trib­uted the sur­prise rally to sig­nals from Pres­i­den­t­elect Trump and his camp that high­lighted pub­lic works spend­ing and de-em­pha­sized pro­tec­tion­ist mea­sures.

Es­pe­cially ben­e­fit­ting in the rally were banks and phar­ma­ceu­ti­cal com­pa­nies, in an­tic­i­pa­tion that Trump and a Repub­li­can Con­gress will lighten reg­u­la­tory pres­sures on both.

Tues­day’s re­sults marked an overnight shift in the eco­nomic pol­icy uni­verse that has dom­i­nated since 2008, said Nick Co­las, chief mar­ket strate­gist at Con­vergex. “Since the fi­nan­cial cri­sis, cap­i­tal mar­kets have only had to fo­cus on one ques­tion, What are cen­tral banks do­ing?” he said.

“In one day, that play­book is over. Now the play­book is what is a new US gov­ern­ment go­ing to do un­der a Don­ald Trump pres­i­dency.” The shift likely hear­kens more volatil­ity in the months ahead, as news and ru­mors drib­ble out about Cab­i­net posts and pol­icy de­ci­sions, Co­las said.

He said stocks could still rise two to four per­cent, al­though he cau­tioned that higher in­ter­est rates could weigh on the hous­ing mar­ket and con­sumer spend­ing. An­other risk is a re­turn to Trump’s puni­tive trade stance, which is gen­er­ally loathed by in­vestors. Trump has said he would raise tar­iffs on goods com­ing from China, block the Trans-Pa­cific Part­ner­ship trade pact and rene­go­ti­ate the North Amer­i­can Free Trade Agree­ment.

On Fri­day one of Wall Street’s most pow­er­ful voices, bil­lion­aire in­vestor War­ren Buf­fett, said that he had backed Demo­crat Hil­lary Clin­ton over Trump be­cause he thought she had bet­ter “tem­per­a­ment and judg­ment.” But he also said that he was “100 per­cent” con­fi­dent in the US, be­liev­ing the country would ul­ti­mately move be­yond the vit­ri­olic cam­paign.

The mar­ket ap­pears to be ig­nor­ing any ques­tions about Trump’s tem­per­a­ment, as well as any fears of ris­ing so­cial ten­sions. The elec­tion has spurred nu­mer­ous protests over Trump’s con­tro­ver­sial state­ments on im­mi­grants and mi­nori­ties. In Port­land, a march by some 4,000 pro­test­ers turned vi­o­lent, with cars van­dal­ized and pro­jec­tiles thrown at po­lice, who used rub­ber bul­lets and pep­per spray to dis­perse the crowd. At least 26 peo­ple were ar­rested.

An­a­lysts said the dis­dain felt by many for the pres­i­dent-elect does not reg­is­ter on mar­kets. “Don’t ex­pect stocks to be volatile be­cause we hap­pen to have a pres­i­dent who has a volatile mix of points of view on so­cial is­sues,” Co­las said. “Plenty of peo­ple did not like Ron­ald Rea­gan in the 1980s and stocks did very well.” —AFP

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