The Trump Tracker: Stock Market Next Stop? Correction Or All-Time Highs?

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Includes: CRF, DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PPLC, PPSC, PSQ, QID-OLD, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWL, RWM, RYARX, RYRSX, SBUS, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TALL, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USA, USSD, USWD, UWM, VFINX, VOO, VTWO, VV, ZLRG
by: Hedgeye

Summary

The market expects President Trump to be bullish for the U.S. economy.

U.S. growth bottomed in September/November and is now accelerating.

Stay invested in U.S. stocks.

The post-Election Day exuberance among investors is obvious to even the most tangential of financial market watchers. But is it warranted?

We think so. Investors should stay invested in the stock market as the U.S. economy heats up. Furthermore, stock market moves continue to be confirmed by rising volume and lower volatility.

Consider the facts (in our Trump Tracker below). Since Election Day, Wall Street has ratcheted up U.S. economic growth expectations. In just three months, GDP estimates for the first quarter of 2017 have risen 2 basis points to 2.3%. Consumer price inflation expectations for year-end 2017 are up 2 basis points too, to 2.2%.

Measures of consumer and small business confidence have spiked dramatically since Trump's election. Many have hit post-financial crisis highs. Here are the latest results compared to pre-election October readings:

  • Confidence Board Consumer Confidence: 111.8, up 11 points
  • NFIB Small Business Optimism: 105.8, up 11 points

Investors, consumers and small businesses alike are clearly on the Trump Train.

Then there's the post-Election Day market moves:

  • Aluminum: +29%
  • Steel: +19%
  • Financials (NYSEARCA:XLF): +17%
  • Russell 2000 Value: 15.5%
  • Russell 2000: +13.7%
  • Industrials (NYSEARCA:XLI): +9.5%
  • S&P 500: +7.2%
  • U.S. Dollar Index: +2.5%

The common thread running through financial markets is U.S. growth expectations are rising.

We asked recently, "Are You Bullish Enough?" and added these facts to the mix:

  • GDP: Fourth quarter U.S. GDP (year-over-year growth) came in at 1.9%, up from 1.7% in the third quarter (the second consecutive quarter of accelerating growth, since five quarters of decelerating growth to the 1.3% second quarter low.)
  • Industrial Production rose to +0.5% recently, breaking a 15-month streak of negative year-over-year growth.
  • Durables Ex-Defense & Aircraft (household demand proxy) was +0.9% sequentially for December and improving solidly to +3.6% year-over-year = 3rd month of positive year-over-year growth
  • CPI: Inflation accelerated for a 5th consecutive month, taking consumer price growth to its highest level in 32-months (since May 2014) at +2.1% in December.

Sure, the stock market bears will can argue that complacency has set in. Since Election Day, the VIX, a stock market volatility index, is down almost -40% to a reading of 11.43. (Volatility rises when investors are fearful of the future.) Typically, when the VIX falls this low (below 12) it snaps up. Investors book gains. Stocks fall.

But as we wrote yesterday, stock market volume has been rising on days when stocks are up and falls on down days. This confirms conviction in the market moves. Investors are buying each rally and not selling the dip.

Bottom Line: The key takeaway is simple. All of this suggests investors stay invested in the stock market.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.