The Trump Rally Extends, DJIA at Record Highs
The Big Q: Why did the market rally like it did?
The Big A: the Bullish price action centered around the following Key factors:
- Short-covering activity
- Momentum as traders chased gains that few people expected
- Strong leadership from the financial and healthcare sectors, which was paced by the major bank, biotech, and major pharmaceutical stocks, all of which are seen as beneficiaries of a Trump Administration
- Newfound attention on the “pro-growth” initiatives that could come into play now that the GOP controls both the executive and legislative branches
- Personal and corporate tax cuts
- Fiscal stimulus for infrastructure upgrades
- Rolling back increased regulatory actions; and
- The repeal of the Barack Obamacare aka the Affordable Care Act
- The S&P 500 cutting through technical resistance at its 50-Day SMA like a hot knife throught butter
- Memories of the post-Brexit trade: sharp declines early, and sharper rebound later
The market rebound was also driven by the certainty factor, meaning the recognition that it was not a contested election something that was out in the media for weeks ahead as possibility as the election results unfolded Tuesday night, instead the nation voted overwhelmnly Revolution Red
This post-Election rally is an astounding development driven as much by disbelief as by belief.
I expect this Bullish bias to be maintained near term into years end,
The rationale for this Bullish bias into year end comes down to the following factors:
- Election uncertainty is removed, and the market’s focus will shift to the pickup in earnings growth
- Because economic growth has been lackluster for so long, market participants will embrace the idea that economic growth should be accelerating in Y 2017 with the GOP adopting what it deems to be pro-growth policies in President Trump’s 1st year in office
- A lot of cash was sidelined in front of the election and is being put back to work, note the heavy volume on Wednesday and Thursday
- Money managers underexposed to stocks, and are not chasing returns in an effort to beat their benchmarks and secure bonuses
- Big banks, major oil companies, biotech companies, major drug manufacturers, and companies with large cash holdings overseas are expected to be beneficiaries of a Trump Administration that favors, among other things, less regulation, lower taxes, and tax repatriation leniency. That grouping of leadership companies carries some relatively heavy weight in the market, so if they trade well, the broader market stands a good chance of doing the same.
- There is still plenty of negativity among investors, which leaves the door open for a contrarian advance
- This is typically a seasonally strong time of year for the stock market
- To the extent that the market accepts the notion that the recent spike in long-term rates reflects a positive view of the growth outlook more than anything else, it could be the beneficiary of an asset allocation shift out of government bonds and back into stocks.
Whether the stock market finds Donald Trump and the GOP strong drivers of national policy is a Question now. But based on the stock market’s very recent behavior, they are off to a really good start, and they have not done anything official yet but set out the transition and begun to drain the swamp of the Bushes, Clintons and Obamas.
Thursday, the US major stock market indexes finished at: DJIA +218.19 at 18807.88, NAS Comp -42.28 at 5208.80, S&P 500 +4.22 at 2167.48
Volume: Trade was heavy with over 1.4-B/shares exchanged on the NYSE.
|HeffX-LTN Analysis for DIA:||Overall||Short||Intermediate||Long|
|Bullish (0.44)||Bullish (0.38)||Bullish (0.32)||Very Bullish (0.61)|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Neutral (0.13)||Bullish (0.32)||Neutral (0.06)||Neutral (-0.01)|
|HeffX-LTN Analysis for QQQ:||Overall||Short||Intermediate||Long|
|Neutral (-0.12)||Bearish (-0.25)||Neutral (-0.21)||Neutral (0.08)|
|HeffX-LTN Analysis for VXX:||Overall||Short||Intermediate||Long|
|Bearish (-0.31)||Bearish (-0.27)||Bearish (-0.25)||Bearish (-0.42)|