Stocks close higher, Dow hits new mark

Trump rally still in power as op­ti­mism tops uncer­tainty

Baltimore Sun - - MARYLAND - By Alex Veiga

NEW YORK — It was per­haps the most sur­pris­ing trade in a record-set­ting week on Wall Street: How quickly in­vestors swapped pres­i­den­tial pre- elec­tion jit­ters for en­thu­si­asm at Don­ald Trump’s vic­tory over Hil­lary Clin­ton.

That en­thu­si­asm — call it the Trump rally — ul­ti­mately pro­pelled the Dow Jones in­dus­trial av­er­age to con­sec­u­tive all-time highs this week and gave the Stan­dard and Poor’s 500 in­dex its big­gest weekly gain in two years.

The rally lost some steam Fri­day, pulling the S&P 500 slightly lower.

The Dow rose 39.78 points, or 0.2 per­cent, to 18,847.66. The S&P 500 in­dex fell 3.03 points, or 0.1 per­cent, to 2,164.45. The Nasdaq com­pos­ite in­dex gained 28.32 points, or 0.5 per­cent, to 5,237.11.

For months, in­vestors viewed Trump and his pro­posed agenda as a more risky bet for the econ­omy and the mar­kets than his ri­val, who had been per­ceived as the can­di­date most likely to keep the sta­tus quo.

But then the bil­lion­aire won. More im­por­tantly, Repub­li­cans re­tained ma­jori­ties in the House and Se­nate, en­sur­ing that the pres­i­dent-elect’s party will be in con­trol when he takes of­fice on Jan. 20.

“I don’t think peo­ple planned on a straight Repub­li­can sweep,” said J.J. Ki­na­han, TD Amer­i­trade’s chief strate­gist. “All of a sud­den you re­al­ize some of the things that the mar­kets have been wish­ing for have a chance to be done.”

In­vestors are bet­ting that Trump and a Repub­li­can­con­trolled Congress will have a clear path to boost in­fra­struc­ture spend­ing, cut In­vestors on Wall Street think Pres­i­dent-elect Don­ald Trump and a GOP-con­trolled Congress will have a clear path to cut taxes and re­lax reg­u­la­tions that slow business. taxes and re­lax reg­u­la­tions that af­fect en­ergy, fi­nance and other busi­nesses.

That agenda flipped in­vestors’ pri­or­i­ties this week away from de­fen­sive as­sets like bonds, util­i­ties and phone com­pa­nies, which traders had fa­vored for much of this year, to health care, in­dus­trial and fi­nan­cial stocks, which notched their best week since 2009.

The trades mark a re- ver­sal from the last cou­ple of years, when in­vestors coped with gov­ern­ment grid­lock, slug­gish eco­nomic growth and low in­ter­est rates by priz­ing less-risky as­sets and stocks like phone com­pa­nies and util­i­ties with high div­i­dends.

Health care stocks are per­haps the best ex­am­ple of how in­vestors’ mind­set has changed in just a few days.

The sec­tor had been one of the worst per­form­ers this year in an­tic­i­pa­tion that Clin­ton, who had main­tained a lead in the polls, would push to ex­pand the gov­ern­ment’s role in health care and curb price in­creases by drug­mak­ers.

That be­gan to turn around this week, as in­vestors bid up shares in phar­ma­ceu­ti­cal com­pa­nies.

Banks also were seen to be po­ten­tially hurt by a Clin­ton win.

But this week they went from be­ing a lag­gard to one of the big­gest gain­ers. The sec­tor is ben­e­fit­ing from the ex­pec­ta­tion that the Trump ad­min­is­tra­tion will re­move some of the reg­u­la­tions im­posed on banks fol­low­ing the 2008 fi­nan­cial cri­sis.

“There’s been a mas­sive shift to­ward a pro-growth bias within port­fo­lios,” David Lyon, global in­vest­ment spe­cial­ist at J.P. Mor­gan Pri­vate Bank.

In­vestors also are bet­ting that Trump’s poli­cies will lead to higher in­ter­est rates, which ben­e­fits banks by mak­ing it more prof­itable to lend money.

The an­tic­i­pa­tion of higher in­ter­est rates fu­eled the sell-off in bonds this week that sent bond prices lower and drove up the yield on the 10-year Trea­sury note to the high­est level since Jan­uary. OnMon­day it was 1.83 per­cent. It hit 2.14 per­cent as of late Thurs­day. Bond trading was closed Fri­day in ob­ser­vance of Vet­er­ans’ Day.

That yield is a bench­mark used to set in­ter­est rates on many kinds of loans in­clud­ing home mort­gages.

De­spite the mar­ket’s en­thu­si­asm this week, there is still an el­e­ment of uncer­tainty about the Trump ad­min­is­tra­tion.

There’s the ques­tion of what steps Trump will take to clamp down on il­le­gal im­mi­gra­tion and to rene­go­ti­ate trade deals.

“What sounded great on the cam­paign trail may not be ac­tu­ally so great to a lot of busi­nesses, par­tic­u­larly tech­nol­ogy,” Ki­na­han said.

MARK LENNIHAN/AP 2013

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