Stock markets start January with a bang
For first time since ’13, S&P 500 posts gains on first trading day
What a difference a year makes. The U.S. stock market kicked off the first day of trading of 2017 with solid gains, a year after plunging in the opening ses- sion of 2016 on its way to its worst week to start a year ever.
The benchmark Standard & Poor’s 500 stock index — which closed up 0.5% to 2251 — posted a gain on the first trading day of a new year for the first time since 2013.
Last year, the large-company stock index cratered 1.53% on January’s first trading session — its sixth-worst Day 1 percentage loss and worst annual kickoff since 2001 — on its way to a worst-ever first week of the year decline of 5.96%, according to S&P Dow Jones Indices. The S&P 500, however, rebounded and finished 2016 up 9.5%.
The Dow Jones industrial average rose as much as 176 points before pulling back and finishing up 61 points, or 0.3%, to 19,824. The blue-chip index came within 105 points of 20,000 after a late-year flirtation with the milestone fell short.
The technology-packed Nasdaq rose 0.5% higher, and the small-company Russell 2000 stock index, which gained 19.5% in 2016, finished flat.
“When the final week of 2016 ended on a flat note, many people were wondering whether the Trump rally was fading,” says Nick Sargen, senior investment adviser at Fort Washington Investment Advisors.
“The strong opening (today) suggests that it may have more legs to it.”
The early-year optimism on Wall Street vs. the dark pessimism at the start of 2016 can be attributed to several key factors:
LACK OF PANIC TRIGGERS. “The poor start to 2016 was due to plummeting oil prices and concerns about China’s currency, economy and stock market,” says Sargen.
Last year, U.S.-produced crude plunged to a 13-year low in January amid fears of a severe economic slowdown in China. A mainland China stock market crash prompted Beijing to halt trading on two days in the first week of 2016.
This year, no such threats are visible. Oil, thanks to a late 2016 deal by OPEC and other oil producers to slash daily crude pro- duction, pushed back to a 16-month high of $55 per barrel earlier Tuesday.
China’s Shanghai stock index kicked off 2017 with a 1% gain Tuesday, extending its gains from its low point in January 2016 to 19%.
LESS THREATENING FED, GDP OUTLOOK. “The Federal Reserve was threatening to raise interest rates four times at the beginning of 2016 at a time when commodity prices were tanking and the global economy was weakening. This time they suggest three rate hikes, but commodity prices are firm, oil has doubled since the February 2016 low and the U.S. and other econo- mies are showing strength,” says Bruce Bittles, chief investment strategist at Baird.
“TRUMPONOMICS” IS BULLISH. The president-elect’s plans to slash corporate taxes, reduce burdensome regulations and spend on infrastructure is viewed as growth-friendly. “The Trump win is a win for business, which has huge ramifications ... as far as the eye can see,” says Bittles.
PENSION FUND SELLING CEASES. Due to strong performance by the stock market relative to bonds in 2016, U.S. pension funds were forced to sell stocks and buy bonds so as not to have too large a helping of stocks.