How Long Will Trump Rally Last?
All of the major equity indices have hit record highs following the presidential election, but now the market is due for a consolidation to absorb overbought conditions. Further upside gains will probably be limited ahead of the December 14th FOMC announcement with a 100% expectation of a hike, that should be a non-event. As reported by Ryan Vlastelica in a recent MarketWatch article, largely been obscured in the aftermath of Trump’s underdog victory, which sparked the equity rally, a win by the Republican candidate had been widely seen as negative for markets.
The President-elect was viewed as a wild card, lacking a track record in government and offering few or contradictory policy details. His temperament suggests a question mark more than a steady hand. “While the U.S. macroeconomic cycle may get a boost from the proposed fiscal stimulus, corporate tax reform and deregulation, both the passage and efficacy of these measures are far from certain at this moment,” J.P. Morgan wrote in a Nov. 30 note. “We think that, fundamentally, risks for equities in 2017 are higher compared to 2016. We expect an increased level of geopolitical risk and increased uncertainties related to the new U.S. administration.” “This fearless stock market looks to be underestimating the possibility of President Trump rattling risk markets during his four-year term,” wrote John Blank, chief equity strategist at Zacks Equity Research. “He remains unpredictable.” The graph below confirms are recently analysis is still valid where we stated “…The past few weeks investors having been selling off bonds, gold, utilities and other defensive sectors.
As evidenced in the updated chart below, investors are rolling into financial, industrials and other sectors expected to benefit from Republican control of the presidency and both houses of Congress. Also, historically, November begins the best consecutive six months for the stock market. There is still plenty of cash sitting on the sidelines and any price pullback should be considered a buying opportunity for stocks on your watch list.
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