How important President Donald Trump's speech before a joint assembly on congress Tuesday night was is not easy to gauge, but, from a Wall Street perspective, he must have hit the high notes perfectly because all major averages were straight up at the opening bell and continued to add to gains throughout Wednesday's session.
The Dow, which blew away the 20,000 Rubicon less than a month ago, added nearly 1.5%, or 303 points, its largest one-day gain since early December. With Industrials leading the way, the other three major averages broke out as well, with the S&P pretty much reaching highs that analysts had been predicting as end-of-year results, yet we're barely two months into the new year.
How this kind of euphoria will eventually manifest itself is still a mystery, especially with stocks tacking higher despite consistent warnings of a valuation trap being set. While stocks continue to ramp on a daily basis, corporate reports are not following the same tune. Additionally, analysts from various houses also revised first quarter GDP estimates lower, with Goldman Sachs and the Atlanta Fed looking for 1.8% growth. JP Morgan and Bank of America are even more pessimistic, at 1.5% and 1.3%, respectively.
In the main, what companies behind the stocks are counting on is a relaxed regulatory environment under President Trump's administration. The President has already issued a variety of pro-business executive orders and his commitment to repealing and replacing the Affordable Care Act (Obamacare) is also being viewed as a positive on two fronts. First, it will free up consumer funds from an expensive mandated coverage nightmare; second, companies will probably get breaks as well in group coverage.
Adding to the speculative high spirits are items currently under the radar such as the President's budget, which includes massive cost-cutting across agencies, a one trillion dollar infrastruture plan that Mr. Trump touched on it in his speech, and trade negotiations with countries outside the framework of international treaties such as NAFTA, TPP and the World Bank.
All told, President Trump's first six weeks in office have been nothing short of miraculous for stocks, though it will take some time to see how it all plays out. Either stock pickers have been set up for a major catastrophe or the enthusiasm and honesty of the new president will indeed guide America and American business interests to new heights.
Lurking in the shadows behind the presidential bluster is the Federal Reserve, which meets in two weeks to decide whether to raise federal funds rates or keep them at current levels. Money is on them keeping the rates at the current 0.50-0.75, though even an increase of 25 basis points would seem to be inadequate to quiet Wall Street's enthusiasm.
At the Close, 3.1.17:
Dow: 21,115.55 +303.31 (1.46%)
NASDAQ: 5,904.03 +78.59 (1.35%)
S&P 500: 2,395.96, +32.32 (1.37%)
NYSE Composite: 11,661.22, +148.83 (1.29%)