Wall Street soars, pins hopes on Trump ad­min­is­tra­tion

The rally is the big­gest for any in­com­ing pres­i­dent since Ron­ald Rea­gan.

The Denver Post - - BUSINESS - By Lu Wang, Joseph Ci­olli and Oliver Renick

Don­ald Trump is do­ing to U.S. eq­uity bears what seven years of eco­nomic stim­u­lus rarely could: shut them up.

Two years of paral­y­sis has for now ended in stocks, with more than $1 tril­lion added to shares val­ues since Elec­tion Day and the Dow Jones In­dus­trial Av­er­age look­ing bound for 20,000. Both the Dow and S&P 500 In­dex jumped to fresh records Wed­nes­day and Thurs­day, while banks traded at eight-year highs.

Wall Street stock fore­cast­ers, more pes­simistic than any time since 2013 as re­cently as Septem­ber, are sud­denly fall­ing over them­selves to push up tar­gets and ex­plain a mar­ket where mea­sures of anx­i­ety are near five-year lows. The av­er­age call of bank prog­nos­ti­ca­tors is for the S&P 500 to rally 3.4 per­cent next year, with strate­gists at JPMor­gan Chase & Co. and Bank of Mon­treal call­ing for even big­ger gains.

For in­vestors, the ques­tion is how much cre­dence to put in an­a­lysts whose fu­til­ity in suss­ing out Trump’s im­pact on share prices was ri­valed only by the in­ac­cu­racy of po­lit­i­cal polls prior to his vic­tory. Not only has he not been the dis­as­ter many of them warned about, the rally since he de­feated Hil­lary Clin­ton is now the big­gest for any new pres­i­dent since Ron­ald Rea­gan.

“What we didn’t ex­pect was the speed and the mag­ni­tude of the so-called ‘Trump Trade,’” Doug Ram­sey, chief in­vest­ment of­fi­cer at Leuthold Group LLC, wrote in a note pub­lished Wed­nes­day. “The con­sen­sus hope, which we share, is that tax re­form and reg­u­la­tory roll-back will ex­tend and maybe en­liven an eco­nomic re­cov­ery that’s al­ready long in the tooth.”

Pin­point­ing Trump’s role in the rally is an in­ex­act sci­ence, and a case could be made that his elec­tion is co­in­cid­ing with the con­sum­ma­tion of the Fed­eral Re­serve’s ef­forts. Among other things, an­nu­al­ized gross do­mes­tic prod­uct rose 3.2 per­cent in the third quar­ter, the most in two years, while un­em­ploy­ment hit a nine-year low in Novem­ber.

But the rally is par­tic­u­larly hard to rec­on­cile with the body of pes­simism that has shad­owed the Barack Obama bull mar­ket since it started in 2009. Head­winds that looked cer­tain to halt the ad­vance just one month ago — from stalled cor­po­rate earn­ings to the high­est val­u­a­tions since the in­ter­net bub­ble and the sput­ter­ing econ­omy — are prov­ing lit­tle match for the new pres­i­dent’s eco­nomic pro­nounce­ments.

Not that those ob­sta­cles have gone away. While signs of a re­bound emerged in the third quar­ter, prof­its for S&P 500 com­pa­nies just un­der­went one of the long­est stretches of de­clines for any non­bear mar­ket pe­riod on record. At just un­der 21 times earn­ings, stocks are trad­ing at the high­est mul­ti­ple since 2001, ex­clud­ing a few months af­ter the fi­nan­cial cri­sis when earn­ings in some in­dus­tries were close to noth­ing.

The sud­denly boom­ing stock mar­ket has prompted fund man­agers who had been hoard­ing cash amid eco­nomic and po­lit­i­cal un­cer­tainty to put money to work at the fastest rate since 2009. Ac­cord­ing to Bank of Amer­ica Corp.’s lat­est sur­vey in Novem­ber, cash lev­els plunged to 5 per­cent from 5.8 per­cent in Oc­to­ber.

In­vestors are fret­ting they’ll miss out on a year-end rally. They added al­most $50 bil­lion to ex­change-traded funds that track U.S. eq­ui­ties last month, the most since Bloomberg be­gan track­ing the data since 2000.

“U.S. eq­uity in­vestors have fo­cused more on hope than fear since Don­ald Trump’s elec­tion,” David Kostin, chief U.S. eq­uity strate­gist at Gold­man Sachs Group Inc. wrote in his 2017 out­look. “Hope will dom­i­nate dur­ing the first part of 2017. The prospect of lower cor­po­rate taxes, repa­tri­a­tion of over­seas cash, re­duced reg­u­la­tions, and fis­cal stim­u­lus has al­ready led in­vestors to ex­pect pos­i­tive EPS re­vi­sions.”

Dis­per­sion among S&P 500 stocks, trader lingo for the abil­ity of share prices to chart an in­de­pen­dent course, is in­creas­ing and poised to get bet­ter, ac­cord­ing to Gold­man.

Next year will bring “op­por­tu­nity for al­pha gen­er­a­tion,” due to macro and mi­cro shifts as­so­ci­ated with Trump ad­min­is­tra­tion and ag­ing eco­nomic cy­cle, Kostin wrote in a note to clients this week. By one mea­sure, dis­per­sion the week af­ter the elec­tion reached the big­gest in al­most eight years.

Tourists in New York stand next to the “Charg­ing Bull” statue, some­times called the Wall Street Bull, a bronze sculp­ture by Ar­turo Di Mod­ica that sym­bol­izes ag­gres­sive fi­nan­cial op­ti­mism and pros­per­ity. Em­manuel Dunand, AFP file

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.