A combination of bold political promises & fresh growth propelled international stocks to new highs. Both European & U.S. stocks are on the rebound, & there’s no end in sight. While the rise of Europe’s stocks was fueled by commodities producers, U.S. stocks peaked due to political fanfare. Trump is preparing to unveil a “phenomenal” tax plan, & the market is already reacting. All four major U.S. equity benchmarks hit records, & the dollar flourished amidst the promises of more spending.
Even though optimism is high in America, that isn’t being reflected across the board. Both the yen & the euro slid, while crude took a surprise beating. Investors are still in suspense about the Federal Reserve’s rate adjustments in March. Fortunately, they won’t be in the dark for long. Fed Chair Janet Yellen will address the issue next week in Congress. This week is already off to an interesting start, & next week should be even more eventful.
Bullish Market Brings Mixed Consequences
“We see equities as better positioned in 2017,” according to a report jointly-authored by Mihir Worah, chief investment officer for asset allocation at Pacific Investment Management Co. “Protectionism and a fiscal boost, combined with a U.S. economy operating close to full employment, raise the possibility of higher inflation and larger inflation surprises.”
Trump’s done it again, & the market is experiencing a bullish mentality. It’s obvious that the ball is in his court. Backed by a Republican-led Congress, his plans to deliver pro-growth policies will undoubtedly loosen restrictions. This is paving the way for rampant inflation, but only time will tell how effective these policies are. Either way, the market has adopted Trump’s aggressive approach & stocks are skyrocketing.
Along with the promises of pro-growth policies, banks helped push stocks to new heights. Four of the major U.S. equity benchmarks hit records, reflecting the market’s optimism. For the first time ever, the Dow Jones Industrial Average topped 20,400 with a 150 point lead. Banks helped propel the S&P 500 Index 0.5% to a record 2,328.68. This was their 5th straight gain, & Trump’s plans could help them continue this run.
This bullish mentality was reflected in international stock markets. The MSCI All-Country World Index soared by 0.5%, barely missing an all-time high. Things looked even better in Europe, with the Stoxx Europe 600 gaining 0.8%. This put them on the longest winning streak of the year with its 5th straight gain. The valiant comeback was heavily influenced by the wild success of commodities producers. Friday’s rally is showing no signs of stopping, which is exactly what investors need.
Currencies had mixed reactions, but overall things held somewhat steady. The Bloomberg Dollar Index rose by 0.2%, adding to the 0.7% gain from last week. Out of all the major currencies, the yen got hit the hardest with a 0.5% blow. This put it at 113.817 per dollar, cementing its biggest weekly decline since December. The euro was right on the yen’s heels, experiencing a 0.2% blow that left it at $1.0619.
Commodities jumped after Trump’s announcements, & it was reflected throughout the market. Copper enjoyed a 0.7% boost, which extended their largest jump since 2013 on the London Metal Exchange. Iron ore gained a whopping 4.9%, reaching its highest in 2 years. In sharp contrast, crude fell 1.9% to $52.85 a barrel. This surprise move broke their 3-day gain.
Since there’s so much bravado going on in politics, it’s no surprise that the market has gotten bolder. Even if Trump’s plan falls flat on its face, it will stimulate short term production. This will raise stocks, commodities & the dollar. The only wildcard will be inflation, & that can be both a gift & a curse. We will have to keep our eyes peeled, because things can change at a moment’s notice.