Is market entering a ‘show me’ phase?
Investors begin shifting to mood of cautious optimism
As financial markets reopen for business in 2017, some Wall Street pros say the so-called “Trump rally” is entering a new stage: the “show me” phase.
Stocks, as measured by the Standard & Poor’s 500 index, have risen 5.5% since Election Day on hopes that Presidentelect Donald Trump’s platform will boost economic and corporate profit growth. The bulk of those gains are based on Trump’s promises to slash corporate taxes, get rid of regulations companies label burdensome and spend heavily on the nation’s aging infrastructure.
Stocks started strong on Tuesday, the first trading day of the year, but gave up a chunk of their early gains in what appears to be a sign that investors aren’t willing to commit unlimited capital to stocks simply on hopes of better times ahead. The Dow Jones industrial average’s early 176-point gain Tuesday got trimmed to a respectable, but lower, 119-point advance by the market close, and the S&P 500’s early 1.1% gain was trimmed to a 0.9% increase.
Call it a shift from blind optimism to cautious optimism.
“We are entering the ‘show me’ phase,” says Joe Quinlan, chief market strategist at U.S. Trust. “The markets have been trading off of hope, now they want to trade off of reality — or see the actual pro-growth policies of the new administration in place.”
The Dow’s flirtation with, but inability (so far) to reach 20,000 may be further evidence of a sentiment shift. Despite coming within 13 points of that milestone on Dec. 20, it has been unable to break through the barrier as investors look for concrete signs that the good news they’ve priced in since Election Day is coming.
“The market should be settling into more of a ‘delivering the goods’ (mentality). The market is also likely awaiting the actual proposals for corporate and perhaps personal tax reform” once Trump is sworn in as president on Jan. 20, says Bill Stone, chief investment strategist at PNC Asset Management Group.
Instead of looking forward to Trump’s post-inauguration moves as they have been, investors Tuesday were once again focused on economic data and other market forces.