Trump shifts from Wall St. villain to savior
By USA TODAY - Adam Shell
Monday - November 28, 2016 1:23 pm     Article Hits:240     A+ | a-
How did Donald Trump go from a scary president-to-be in the eyes of Wall Street on election night to a bullish catalyst that has propelled the U.S. stock market to a series of record highs in a surge investors dubbed the “Trump Rally”?Turn the clock back to late October and early November, when the Dow Jones industrial average tumbled seven straight sessions as investors reacted to tightening polls that hinted that the long-shot Trump had a shot at the White House. Recall election night when the Dow plunged 900 points in after-hours futures trading as it became clear the ex-reality star and combative presidential campaigner had upset Hillary Clinton



President-elect Donald Trump appears on a television screen on the floor of the New York Stock Exchange Nov. 9.(Photo: Richard Drew, AP)
ts in after-hours futures trading as it became clear the ex-reality star and combative presidential campaigner had upset Hillary Clinto
n.


Those initial stock market reactions seemed to cement the notion that Trump, the billionaire businessman with the unpredictable personality and seemingly market-unfriendly views on topics such as free trade and immigration, would be poisonous to financial markets. Trump, markets feared, would inject so much uncertainty into the political and economic discourse that he would cause a flight from investment risk-taking and a mass investor retreat into haven investments such as cash, gold and the Japanese yen.


Well, that pessimistic, apocalyptic and bearish script has been rewritten completely. Starting the day after Trump’s election win when the opening bell rang on Wall Street, U.S. stocks did what few pundits saw coming: they started to rise in value — a trend that has continued for two weeks and that has pushed U.S. stocks to record highs. Blue chip stocks soared. So did large-company stocks in the Standard & Poor’s 500, as did small-caps in the Russell 2000. Tech stocks in the Nasdaq eventually took flight, too.

The rally has been so broad that all four stock indexes closed at record highs at the same time last week — on three straight days — a bullish feat last seen on New Year’s Eve 1999, during the tail end of the biggest bull market in history.

What switched Wall Street’s “like” Trump button to on? Here are some theories:

IT'S THE POLICIES

As soon as Trump became president-elect and the Republicans retained control of both chambers of Congress, Wall Street stopped viewing Trump as a personality and started to plug into their spreadsheets what his proposed pro-growth, “America First” policies might mean for the nation’s economy and corporate earnings. When they finished calculating some preliminary numbers, they liked what they saw.

“You went from a market expecting higher taxes to now lower taxes, a market expecting more regulations now less regulations, a market expecting Elizabeth Warren (no friend of Wall Street) as Treasury secretary and Bernie Sanders (a Democratic presidential hopeful who wanted to tax the rich and boost government spending on new programs) heading the budget committee to now conservatives in those spots,” says Gary Kaltbaum, president of Kaltbaum Capital Management. “The market was not positioned for any of this as Clinton (was the favorite). So the big money has to get into the market, which feeds on itself.”

Trump’s policies are akin to a performance-enhancing drug, explains Charles Gabriel, a veteran Wall Street political forecaster and president of Capital Alpha.

“It's pretty simple: Growth, with supply-side tax cuts plus a lighter regulatory touch, after years of Obama, can be made to seem like Viagra,” Gabriel says.

TRUMP-FEARING SELLERS SOLD OUT

By the time the New York Stock Exchange opened for trading the first day after the election, everyone who wanted to sell had done so, paving the way for a higher market, says David Kotok, chief investment officer at Cumberland Advisors.

“The starting point has to be the spike down in the two weeks preceding the election,” Kotok says. “That exhausted U.S.-based sellers and energized short sellers (or investors who bet on, and profit from, a falling market). On election night, the U.S. sellers were joined by the rest of the world. Panic maximized at 900 Dow points down. So all the sellers worldwide had exited. Now Trump wins. There are no sellers left standing. Stocks have nowhere to go but up. So they do.”

Now that the S&P 500 is above 2200 and at record highs, investors have to go back to the basics, not just buy on the Trump momentum, Kotok says. “It is time to return to fundamentals, Federal Reserve interest rate policy and the unfolding of the new Trump regime,” Kotok says.

TRUMP, THE MAN, TONES DOWN HIS ACT

Many cite Trump’s gracious acceptance speech and his positive post-election meeting at the White House with President Obama as key turning points, raising hopes on Wall Street that Trump could come across as presidential.

“Investors worried about Trump’s capricious personality were comforted by his moderate acceptance speech,” says Jack Ablin, chief investment officer at BMO Private Bank. “He’s ratcheted back his extreme policies and behaviors. I think that’s the root of today’s enthusiasm.”

Thorne Perkin, president of Papamarkou Wellner Asset Management, says, “People are understanding now that Trump is dialing back the rhetoric and reining in the bombastic talk. He's acting more presidential. Clearly, Trump is not as self-destructive as he was portrayed, and he cares deeply about his legacy.”

CLARITY RETURNS, UNCERTAINTY EASES

Wall Street hates uncertainty and lack of an investment road map. A big fear was a contested election or a vote count that resulted in no clear winner. That didn’t happen. Clarity returned, and stocks shot up as uncertainty diminished, says Mark Luschini, chief investment strategist at Janney Montgomery Scott.

The Trump turnaround and stock rally, Luschini says, is based on several things: “the certainty that comes from the election being over; the fact that the single-party system in place will likely be able to legislate some — if not all — of the market-friendly agenda items Trump advocated; a return to the TINA principle (“There Is No Alternative" to stocks); and a belief that Trump’s policies will lead to better corporate earnings growth and improved economic data.”





 

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