Record-setting stock rally faces test in Trump speech
major presidential address on Tuesday.
“If he comes out next week and there are little or no details other than that it is going to be great, that is going to be a time where we could have the first sort of crack in the armour,” said JJ Kinahan, Chief Market Strategist at TD Ameritrade in Chicago.
Trump has said enough so far to help propel major stock indexes to alltime highs.
The Dow Jones Industrial Average this week marked its longest run of consecutive record-high closing prices in 30 years.
With stock valuations expensive, many market participants are bracing for a pullback.
The S&P 500 is trading at nearly 18 times forward earnings estimates versus the long-term average of 15 times, according to Thomson Reuters data.
In Tuesday’s speech, “the market wants to hear about concrete tax reform plans that have traction either across the Republican base or have the potential to reach across to moderate Democrats,” said Alan Gayle, Director of Asset Allocation with RidgeWorth Investments in Atlanta.
“If the market begins to doubt Trump’s ability to follow through on his promises, then I would think that we would see a 5 per cent market correction fairly easily,” Gayle said.
Investors are also watching for hints about timing of Trump’s economic plans.
US Treasury Secretary Steven Mnuchin on Thursday laid out an ambitious schedule to enact tax relief by August.
“The one thing that could stall this rally would be any sort of indication that we won’t see the bulk of the effects this year,” said Bruce McCain, Chief Investment Strategist at Key Private Bank in Cleveland. “I think that would take some of the air out of the enthusiasm,” he added.
Investors will also be listening for comments about the border adjustment tax being pushed by Congressional Republicans, about which Trump spoke positively in an interview on Thursday after having previously sent mixed signals.
Ahead of Trump’s address, the stock options market was not yet foreseeing a huge reaction to the speech, bracing for a move of 0.9 per cent in either direction by Wednesday’s close, according to pricing on at-the-money straddles on S&P 500 index options.
Investors appeared to show comfort wading into the stock market, according to Lipper data released on Thursday, with US-based stock funds attracting $2.7 billion in the latest weekly period, their fourth consecutive week of inflows.