Can Trump's Wall Street honeymoon last?
Since Election Day, Donald Trump and Wall Street have enjoyed a honeymoon-like romance, with U.S. stocks surging in celebration of the president-elect’s business-friendly agenda.
The question is whether the money-making dalliance will last through Inauguration Day and beyond?
The 6.1% gain for the Standard & Poor’s 500 stock since Election Day puts the “Trump Bump” on track for the fifth-best advance between Election Day and Inauguration Day since the 1928 presidential election, according to data from money management firm Gluskin Sheff.
In the past 22 presidential elections, stocks have moved higher 65% of the time from the day voters go to the polls to the new president taking power. Herbert Hoover enjoyed a best-ever post-election jump of 13.3% in 1928.
The worst performances were a 19.9% plunge after President Obama's 2008 election at the height of the financial crisis and a 19.3% drop under Franklin D. Roosevelt in 1932 during the Great Depression.
The case for the "Trump Rally" challenging the Hoover advance or gains enjoyed by Dwight Eisenhower in 1952 (+6.3%), John F. Kennedy in 1960 (+8.8%) and Bill Clinton in 1996 (+8.8%) is a bet that the ebullience surrounding Trump’s plans to jump-start economic growth extends beyond Inauguration Day.
The Trump-inspired rally has also catapulted the Dow Jones industrial average within striking distance of 20,000 for the first time in its 120-year history. On Tuesday, the Dow, which has surged more than 1,600 points since Election Day, rose as high as 19,987.63 – or less than 13 points from the major milestone -- creating a day of drama and Dow-watching. The Dow closed at 19,974.62.
Indeed, any downshifting of expectations isn't expected to occur until after Jan. 20 when Trump takes the oath of office. The reason: details of what Trump may or may not get done will not be available until after he moves into the White House.
“Investors are now fixated on changes in tax policies, regulatory policies and government entities that are all pro-business, and I don’t see that changing from now until Inauguration Day, so the trend is your friend,” says Nick Sargen, senior investment adviser at Fort Washington Investment Advisors.
The risk is if there's any whiff of Trump’s market-friendly initiatives running into roadblocks on Capitol Hill, says Quincy Krosby, market strategist at Prudential Financial.
“A meaningful (fall in stock prices) will come if there's any sense that Trump's pro-growth program is at risk or not going to get enacted quickly,” Krosby says. “All honeymoons come to an end when reality kicks in.”
Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, is not looking for “meaningful pullbacks” in stocks between now and Jan 20. If any market dips do occur, buyers will swoop in and continue to support the market, he predicts.
After Trump takes office, the market's emphasis will shift from “hope” of change to a sharper focus on the odds of real legislation getting done.
“Typically, the stock market only trades off the election result for a few weeks,” Wren explains. “Then, quickly, the market gets back to trading off what the (business outlook) looks like over the next six to twelve months. Investors only pay attention to what ‘might’ or ‘could’ happen two or four years down the road for a brief period of time.”
The problem is that history says Trump won’t be able to change things overnight.