Trump’s Magical Wand

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By: Shlomo Cooper, Senior Analyst at Tradenet

Trump’s wand worked its magic! After double-digit gains on most of the leading Wall Street indexes last year, the market opened the year on the right leg, recording sharp gains on its first trading day, with the post-election rally refueled yesterday by Verizon (VZ), Facebook (FB) and Google (GOOGL). In summary for the day, the NASDAQ rose 0.85%, the S&P 500 rising by a similar margin.

Verizon (VZ) gave the S&P 500 its biggest push, with gains of 2.25% after receiving an upgrade from Citigroup (C). Google (GOOGL) soared almost 2%, Facebook (FB) tacking on 1.57%.

U.S. stocks have soared over the last 2 months on the background of expectations that president-elect, Donald Trump, will implement a stimulus program for the U.S. economy that spans tax cuts, infrastructure investment and limitations on banking industry regulation.

At the same time, in light of the fact that the Dow Jones is trading close to the 20,000 point level, a mark yet to be surpassed, some investors are warning that further short-term market gains of any significant substance are nowhere on the horizon. These very same investors want to see tangible evidence that the Trump campaign promises will be seconded by Republican legislators who are anxious about the prospect of growing the federal budget.

The stock of Ford (F) soared 3.79% after the carmaker announced that it was cancelling its planned $1.6 billion factory in Mexico and in its stead, would be investing $700 million in its Michigan factory after president-elect Trump sharply criticized the company’s plans to invest on the other side of its southwest border.

Crude soared to an 18-month high, only to about-face and fall into the red on the day. The “black gold” started the day up over 2%, only to close off 2.6% at $52.33 a barrel. The energy sector (XLE), nevertheless, ended up 1.15%.

The U.S. dollar hit a 14-year high after figures showed that U.S. factory order activity accelerated to a 2-year high in December.

On the S&P 500, 17 stocks rose to new 52-week highs, with just one dipping to a new yearly low; on the NASDAQ, 121 stocks recorded new 52-week highs, 26 falling to new yearly lows.

Wednesday: Stocks are likely to continue to benefit from the cheery beginning-of-the-year environment today as investors add on new positions to their investment portfolios and look to the Fed minutes to uncover any sign as to what the central bank expects from a Trump presidency this year.

The minutes from the Fed’s December meeting are expected to be released at 14:00 N.Y. time. In its latest meeting, the Fed hiked rates for the second time in 10 years, releasing a forecast for 3 more hikes in 2017. The big questions investors are looking for answers to from the minutes include: 1) What stance is the bank taking on world economic performance this year? 2) How do Fed bankers see the perceived risks in light of the incoming administration – and more specifically, what impact will that have on Fed monetary policy?

Investors will presumably also want to get more information on what the Fed has to say about inflation rates. The ISM manufacturing survey released on Tuesday highlighted a stronger than expected December reading with a large – and surprise – jump in prices. The ISM soared to the 54.7 point level last month, its highest level since 2014, though prices on the index rose sharply to the 65.5 point level, the highest level since June 2011.

The jump in prices signals that inflation is already on the horizon. Given the fact that manufacturers usually only raise prices in the first half of the year, these numbers become all the more surprising, providing a strong indication that inflation is likely to see an uptick.

On today’s Economic Diary, in addition to Fed minutes, we’ll also be getting December’s car sales numbers, this year’s deliveries on aggregate expected to come to 17.5 million.

Wednesday’s Hot Stocks: TSLA, REGN, GILD, PPC

IPOs: None

Have a great trading day!