Up, up and away we can fly, fly away in my beautiful balloon. Those were the unusual words of a classic pop song in the 60’s sung by The 5th Dimension. The tune won ‘Song Of The Year’, ‘Record Of The Year’ and ‘Best Performance By A Group’ at the Grammy Awards. Pretty impressive stuff particularly for a song whose words are confusing. After all who flies away in a balloon, beautiful or otherwise? If I didn’t know any better I’d say it describes the U.S. stock market performance since Donald Trump was elected. Up, up and away and confusing.
The Dow closed up 11 points on Friday to finish at a mind boggling 20,821. It is now up an impressive 12.2% since Trump’s Election Day victory when it stood at 18,300. Lest we should forget the Dow was at 7,947 when Barack Obama first took office on January 20th, 2009. That is almost a tripling in value in eight short years! Adding to the drama, the DJIA is currently enjoying a near-record string of 11 consecutive record highs. A streak not seen since early 1987, just prior to that year’s major market crash.
Strangely President Trump has decided to brand himself with the market’s daily performance, a dangerous, risky proposition to say the least. It was candidate Trump after all who called the stock market a ‘big, fat, ugly, bubble’. If it was a big, fat, ugly bubble at around 18,000 then what could it be possibly be a few months later at near 21,000? Undervalued?
One of the problems facing the market are investor expectations. Investors believe in Donald Trump the businessman as president and economic optimism among business owners is at the highest level not seen since 1980. The market’s record-breaking performance reflects investor’s belief in President Trump’s promises to cut taxes, reduce regulation and create a robust job growth environment. According to market analyst Michael Hewson, “next week it will be three weeks since President Trump promised something ‘phenomenal’ with respect to tax reform and investors are starting to become a little restless. If Trump’s speech next week fails to provide details, then the rally that we’ve seen in the past three months could become susceptible to some profit-taking.”
And therein lies the dilemma. If, in this market which the president as the candidate called an ‘ugly bubble’, President Trump meets expectations with his tax and regulation cuts then the market probably sells off, since it is already built into stock prices. If he under delivers on expectations- or remains vague- then the sell off likely gets ugly. The only question is how ugly. The remaining third possibility is the only one with a positive outcome. If he stuns America and proposes tax and regulation cuts that are specific in nature and better than anyone possibly imagined, then it’s off to the races with a Dow of 25,000 on the horizon. That would be really, really phenomenal. I guarantee it.
This past Wednesday I had the honor of guest hosting the national TV show ‘America Trends with Dr. Gina’. Among my guest were renowned money manager and economist Peter Schiff. Click below to watch my interview with Peter Schiff and get insight on what he believes is in store for the U.S. stock market.
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