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The bulls have been waiting for a catalyst to send the Dow above 20k and it turned out to be Trump’s first week in office. The Dow broke above 20k and the S&P 500 briefly broke above 2,300 over the past few days. The key now is to see if the gains can hold. Elsewhere, the Nasdaq and Nasdaq 100 both hit fresh record highs while the small-cap Russell 2000 is still consolidating its very strong post-election gain. Since Trump won the election, the market has been in a very bullish state. The bullish backdrop occurred when a very easy monetary policy (from global central banks) collided with a bullish fiscal policy. Moving forward, until we see any significant selling, this trading window (bullish state), clearly suggests weakness should be bought, not sold. I would be remiss not to note that the major indices are getting extended and a nice light volume pullback would do wonders to restore the health of this market.
Stocks ended a little lower on Monday on Donald Trump’s first official day in office. As promised, President Trump met with Business CEOs and made it clear that he is focused on creating an environment in which businesses can thrive. In the meeting, Trump made it clear that he wants to cut regulations and cut taxes. Stocks rallied on Tuesday after the bulls showed up and defended major support (50 DMA line) in many important areas. The benchmark S&P 500 and Nasdaq Composite closed at fresh record highs while the Dow closed below 20,000. The financials, materials, energy transports and small caps were among key areas that surged off their respective 50 DMA lines. Once that happened, more buyers showed up and stocks just raced higher. Stocks soared on Wednesday fueled by more action from President Trump. On Tuesday, President Trump signed executive orders that will make it easier for TransCanada to build the Keystone XL pipeline. On Wednesday, Trump made it clear that he’s ready to build the Wall on our southern border. The fact that Trump is moving swiftly on his pro-growth policies was enough to send stocks higher and help the Dow top 20,000 for the first time in history.
Thur & Fri Action
Stocks closed on mixed on Thursday as investors digested the latest round of earnings, economic and political data. Earnings were mixed with some large cap stocks gapping up and some gapping down. Economic data was also mixed. U.S. new home sales fell to 536K, missing estimates for 593K. Weekly jobless claims rose to 259K, missing estimates for 246K. The PMI services index came in at 55.1, higher than the last reading of 53.4. Leading indicators rose 0.5%, beating estimates for 0.4%. Stocks were quiet on Friday as investors digested the latest round of mixed earnings and economic data. The first reading on Q4 2016 GDP came in at 1.9%, missing estimates for 2.2%. Durable goods also missed estimates and came in at -0.4%, compared to the 2.6% forecast. Finally, consumer sentiment came in at 98.5, beating estimates for 98.2.
Market Outlook: Strong Action Continues
The market remains strong as the major indices broke out and hit fresh record highs. The bulls have a very strong fundamental backdrop of monetary and fiscal policy. The ECB extended QE in December and will print another 2.4T to stimulate markets and the global economy. The US Fed only raised rates once in 2016, by a quarter point to 0.50%, which, historically, is still very low. On the fiscal side, Trump’s pro-growth policies are received well.
As always, keep your losses small and never argue with the tape.
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