Trump Rallies into “The January Effect” for the 2nd Year Running

Trump Rallies into “The January Effect” for the 2nd Year Running

Trump Rallies into “The January Effect” for the 2nd Year Running


The Trump ‘Santa Claus’ Rally started the day after Donal J. Trump was elected US President on 8 November 2016, ran throught Christmas 2016, through all of Y 2017, and is still going strong this year, into The January Effect.

It keeps giving happy returns to investors in equities.

The S&P 500 is up 31.3% since Election Day.

It is up 23.7% since President Donald Trump moved into the White House.

Only President Franklin D. Roosevelt’s 1st year beat President Donald J. Trump’s 1st year.

FDR did have an advantage since the stock market had crashed right before him.

The Trump Rally comes on Top of a Bull market that had been going strong during President Barack Hussein Obama’s 8 years in office.

A few weeks after Donald Trump was elected, the GOP having won majorities in both the Senate and the House of Representatives, Shayne and I raise our Y 2017 outlook for the S&P 500, expecting that a combination of deregulation and tax cuts would boost earnings.

We knew it would be a mistake to bet against President Trump

We looked forward to President Trump moving to push Congress to enact his tax reform plan, knowing that it did not matter whether the tax-cutting plan was implemented in 2017 or 2018.

At the beginning of Y 2018, after President Trump had signed the Tax Cut and Jobs Act aka TTR, at the end of Y 2017, the stock market continued to climb to new highs.

We are enjoying it.

As expected, analysts are raising their Y’s 2018 and 2019 earnings estimates significantly following the passage the Trump tax reform.

And, companies are starting to repatriate their overseas earnings.

The corporate windfalls from the tax reform are trickling down to workers, who are receiving bonuses and pay raises.

We expect corporations to use some of their windfalls to boost share buybacks and dividends.

Capital spending may also get a boost.

The US Treasury stands to cash in big too, to the tune of hundreds of billions of dollars during the current fiscal year.

Some good things that are happening, and will continue to happen, as follows:

  1. The Trump bonuses. President Trump delivered on his promise to cut taxes and his promise that the cuts would benefit individuals, not just corporations. Lots of middle-income taxpayers will have a lower tax rate this year. Plus, some of them may receive bonuses and wage increases from employers that are benefiting from the corporate tax-rate cut. Note: Here is a list of big corporations that have announced bonuses and pay hikes following the passage of TTR. They are Apple, Wal-Mart, AT&T, BNY Mellon, Boeing, Comcast, Fifth Third Bancorp, JetBlue, Southwest Airlines, US Bank, and Wells Fargo.
  2. Sector Performance. The performance for the S&P 500 sectors since 22 December 2017, when Trump signed TTR, shows lots of winners to varying degrees: Consumer Discretionary (6.7%), Health Care (6.6), Energy (6.1), Tech (5.6), Industrials (5.4), Financials (5.1), Materials (4.8), S&P 500 (4.7), Consumer Staples (1.9), Real Estate (-3.3), Telecom (-3.3), and Utilities (-4.8).
  3. US Treasury windfall. Last week, Apple announced that it will be paying $38-B in taxes from profits made overseas. That implies that Apple will be repatriating $253-B in profits, assuming they are all taxed at the new 15.5% tax rate. Adding up the Quarterly data reported by the Fed for foreign earnings retained abroad by non-financial corporations (NFCs) since Y 1986, when the data start. They added up to $3.5-T during Q-3 Y 2017. Applying a 15.5% tax rate under TTR,on that total would produce a $540-B revenue windfall for the US Treasury.
  4. Tax holiday for overseas earnings. The TTR moves the US from a worldwide to a territorial tax system, meaning that corporations will no longer be required to pay domestic taxes on dividends received from foreign affiliates.
  5. The Managed Money Rotation. The bad news is that bond yields are rising. For now, that is not a problem for the stock rally, which is getting some fuel from funds rotating out of bonds and into stocks.

Monday, the major US stock market indexes finished on their highs at: DJIA +142.88 at 26214.60, NAS Comp +71.65 at 7408.02, S&P 500 +22.67 at 2832.97

Volume: Trade on the NYSE came in at:856-M/shares exchanged

  • NAS Comp: +7.3% YTD
  • DJIA: +5.3% YTD
  • S&P 500: +5.9% YTD
  • Russell 2000: +4.5% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Very Bullish (0.67) Very Bullish (0.58) Very Bullish (0.73) Very Bullish (0.71)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Very Bullish (0.66) Very Bullish (0.58) Very Bullish (0.77) Very Bullish (0.62)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.47) Bullish (0.31) Very Bullish (0.61) Bullish (0.47)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Very Bearish (-0.52) Bearish (-0.38) Very Bearish (-0.72) Bearish (-0.46)

Stay tuned

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