Weekly Report

Trump’s First Press Party since November 8th to Put Rally to the Test!

The Dow Jones came ever so close to breaking up past the 20,000 mark on Friday, struggling, battling, only to then fall back and leave the task for another week. Coming within just 1 point of the level to which all eyes on Wall Street are turned, the Dow, as hard as it tried, simply couldn’t reach the 20,000 point milestone. At the same time, though, Wall Street indexes ended up with a strong close for the week.

On the week, the Dow Jones rose 1% to the 19,963 point level. The S&P 500 rallied 1.7%, after having achieved an all-time intraday high, the NASDAQ graced with gains of 2.5% on the week as some heavy-weights in the tech sector closed the gap, Amazon (AMZN) being one of the stocks in the spotlight.

The Dow Jones has flirted with the 20,000 point level for weeks now. On Friday, the catalyst that kept the market in suspense and at bay at the same time was the December employment report, which came out weaker than expected, though which nonetheless pushed the index ever so close to breaking up past the 20,000 point level. According to U.S. Labor Dept. statistics, 156 thousand jobs were added last month, falling short of the forecasted 175 thousand. The unemployment rate rose slightly to 4.7%.

Why, then, all the fuss about the weak jobs numbers? The answer is that seeing that they reflect a change in the job market growth trend, we’ll see heightened chances now that the Fed will step back from its plans to hike rates three times this year.

Going back, stocks have had a tendency to rise on the first Friday of the month after employment figures were released, regardless of the reading; weak reports are seen as positive seeing that they mean a more prolonged period of ultra-low interest rates. On the flipside, strong numbers bump up stocks on the background of expectations for increased consumer spending and improved consumer confidence, which causally lead to firm earnings growth.

As a result, it’s no wonder that stocks rallied on Friday when considering that employment figures are one of investors’ main 2017 concerns in light of a faster paced rate hike track. In the event the number of new positions continues tapering, it will be hard for the Fed to pull the trigger and hike rates – and stay true to its earlier forecast of 3 hikes this year. It’s hard to say what led to the job market slowdown, especially when considering the surge in investor and business confidence after Trump was elected the 45th president of the United States of America – coupled by the end of American firms’ 2-year earnings recession and the rebound in the energy sector.

When push comes to shove, the number’s shortfall doesn’t really matter all that much given that Wall Street has succeeded in proving time in and time out that it’s easy to get investors clamoring for gains when money’s cheap and when stocks seem to be the only place to go.

This coming Wednesday, Trump will take center stage when he holds a news conference, the first since having been elected. Investors will want to hear more details about his campaign promises which helped propel the Dow Jones 9% higher since he was first elected on November 8th.

Another test for the “Trump rally” will be the kickoff of the Q4 2016 earnings season, and more than anything, the results of financial companies, the latter taking the lead in the rally with gains of almost 18% since Election Day. J.P. Morgan (JPM), Bank of America (BAC), Wells Fargo (WFC) and PNC (PNC) are expected to report, alongside other banking companies, all this coming Friday.

The S&P 500 is expected to record Q4 earnings growth of 6.1%, though the financial sector is expected to record growth of 15.7%, the highest of any sector.

Our assessment is that the earnings season will be rather good, though the catch is that expectations are very high. When considering some stocks’ price movement, we’d better hope that these stocks succeed in routing expectations, seeing that they’re already fully priced.

President-elect Trump gets the credit for the breathtaking rally that began the moment he was elected, though some economists and investors are saying that the economy, regardless of his victory, was on the uptick. As of now, the market’s traded up because of little more than optimism – but what happens if this new feeling morphs into misguided confidence?! Where will the market head next?

Trump ignited a stock market rally when he spoke in the early hours of the morning on November 9th. His victory speech succeeded in turning around future contracts on market indexes which went from trading off by 5% to a rally that’s now gone strong for 2 months and counting. Trump is focusing on governmental programs geared at spurring growth, like infrastructure spending and tax cuts, something Wall Street simply loves. He hasn’t gone much into depth into the topic of import tariffs or new legislation pertaining to international trade, something that had earlier caused great hesitation on Wall Street – and that is still a main reason for worry.

All eyes will be turned this coming week on the farewell speech of President Obama, and Trump’s first press party on Wednesday, Jan. 11th. Investors will try to grasp the tone of what Trump has to say and gauge whether it’s the same tone they heard in his victory speech two months ago.

Among the companies that will be reporting this week, we’ll find GPN and CUDA on Monday, KBH on Wednesday. On Thursday, be on the lookout for TSM, INFY, and DAL, with Friday featuring the earnings releases of JPM, BAC, PNC, WFC, and BLK.

Have a great trading week!