New ob­sta­cles await US stocks as Dow hits 19,000

Kuwait Times - - BUSINESS -

A post-elec­tion stock-buy­ing spree lifted the Dow above 19,000 for the first time Tues­day, but the in­dex faces key hur­dles, in­clud­ing the prospect of Fed­eral Re­serve in­ter­est-rate in­creases. Com­posed of 30 blue-chip stocks, the Dow Jones In­dus­trial Av­er­age fin­ished at 19,023.87, cross­ing above the big round­num­ber thresh­old. It had topped 18,000 in De­cem­ber 2014.

The mar­ket has been on a tear since the Novem­ber 8 US elec­tion in ex­pec­ta­tions that Pres­i­dent-elect Don­ald Trump and con­gres­sional Repub­li­cans will en­act pro-growth reg­u­la­tory, tax and in­vest­ment poli­cies. But sev­eral an­a­lysts pre­dicted eq­ui­ties would be hard-pressed to score sig­nif­i­cant ad­di­tional gains in the weeks and months ahead.

“It is a beau­ti­ful nar­ra­tive,” said Can­tor Fitzger­ald’s Peter Cec­chini of to­day’s mar­ket sen­ti­ment.

“We are fi­nally go­ing to move back to a point of time when good pol­i­tics can lead the US econ­omy out of its malaise and the Fed will no longer have to act ac­com­moda­tive,” he said, adding that this view­point is “more hope than re­al­ity.” The eq­ui­ties surge has taken into ac­count ex­pec­ta­tions that the Fed will lift in­ter­est rates in De­cem­ber. But the prospect of ad­di­tional rate in­creases in 2017 and be­yond could be more net­tle­some, an­a­lysts said.

“The mar­ket has priced in a rate hike al­most fully in De­cem­ber,” said David Levy, port­fo­lio man­ager at Repub­lic Wealth Ad­vi­sors. “The ques­tion is what the Fed does be­yond that and what guid­ance they pro­vide.” “The mar­ket ben­e­fits from lower in­ter­est rates as we’ve seen for sev­eral years now,” said Levy. “So if the Fed starts giv­ing guid­ance of mul­ti­ple rate hikes in 2017, that could be viewed as a neg­a­tive.”

Prices of US bonds have re­treated since the elec­tion. But a sig­nif­i­cant in­crease in in­ter­est rates after a lengthy pe­riod near zero would likely spur some in­vestors to shift funds out of stocks and into trea­suries. “The real ques­tion is where do we go from here?” said Hugh John­son of Hugh John­son Ad­vi­sors. “When we ask that ques­tion the an­swer is more un­cer­tain­ties about 2017 or what lies be­yond 19,000 than I’ve seen in a long time.”

The rally is bet­ting that Trump will suc­ceed in get­ting a mix of fis­cal stim­u­lus and tax cuts through Congress and that the mea­sures will lead to fur­ther growth. But those are as­sump­tions. A key wild­card will be the re­cep­tion of the plan in Congress where Repub­li­cans hold nar­row ma­jori­ties in both Houses. Con­gres­sional Repub­li­cans gen­er­ally sup­port tax cuts, but are leery of spend­ing pro­grams that could in­crease the deficit. “We do not know how much of (Trump’s) fis­cal stim­u­lus plan will be ap­proved and se­condly when it will start to im­pact the econ­omy and earn­ings,” John­son said. “If I were to use one word to sum­ma­rize what lies ahead, I think it is un­cer­tainty.”

Another ques­tion is just how much of Trump’s vir­u­lent anti-trade rhetoric dur­ing the cam­paign will trans­late into ac­tual pol­icy in of­fice. Wall Street is wary of heavy tar­iffs and other steps that could re­strict com­merce. Also un­clear is the prospects for US cor­po­rate earn­ings, which have slumped for much of the last two years. US com­pa­nies turned a cor­ner in the third quar­ter with bet­ter year-onyear re­sults, but the sit­u­a­tion is ten­u­ous, es­pe­cially if in­ter­est rates rise sig­nif­i­cantly. “Fun­da­men­tals have not re­ally im­proved,” said Cec­chini. “Much of the op­ti­mism we are ex­pe­ri­enc­ing right now is go­ing to evap­o­rate.” —AFP

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.