“A slugfest between uncertainty and speculative fever”
Surprise seems to be the catchword for President-elect Donald Trump, mostly going in his favor so far, much against consensus expectations on Wall Street.
Rather than spark the widely predicted sell-off, his upset victory on Nov. 8 prompted a robust stock market rally, with the Dow Jones industrials index approaching 19,000 zone and catapulting it to new all-time highs. The S&P 500 stock index also unexpectedly leaped by about 6 percent since Election Day.
Another surprise: Financial stocks led the parade, streaking up 11.1 percent, while the industrials climbed 6.5 percent. Also unexpected was the much broader S&P Composite 1500’s 2.4 percent advance since the election.
But volatility is likely to resurface. After a seven-day rally, the market gave up some ground on Wednesday as big investors started realizing that uncertainty on many fronts will soon confront them. Still, Wall Street rebounded moderately on Thursday as the financials and industrials tried to regain market leadership.
“This is a slugfest between uncertainty and speculative fever,” argued George Brooks, editor of the “Investor’s First Read” market letter. He said investors are “pondering the ‘what if’ critical question: What if taxes are reduced, Congress approves megabucks for military and infrastructure spending, regulations are lifted, opening the door for stuff to happen at warp speed?”
Brooks contended that the seriousness of the rally will be signaled by whether buyers pounce on stocks immediately when they try to correct or pull back. He offered a word of caution: “There’s a new-found euphoria on Wall Street, on hopes of great things happening, and they are now willing to bet it will happen. But if the spending plans, tax cuts, lifting of regulations run into obstruction by Congress [where he expects the Democrats will be on the warpath], the market will plunge to more ‘reasonable’ levels -- perhaps develop into a bear market.”
So some investors are repositioning their portfolios and beefing them up with large-cap stocks they believe will better survive the market volatility they expect. And they’re trying to decipher where the serious bounce is in the market’s various sectors to determine where to allocate investments.
“Much of the reversal of fortunes in sector performances occurred over the week since the dramatic presidential election,” noted Ed Yardeni, president of Yardeni Research. The performance derby since last week’s Tuesday close through this week’s Tuesday close showed the financials leading the pack with a 10.9 percent gain, followed by the industrials, which advanced 5.5 percent.
Not far behind was energy, which gained 3.2 percent. Health care and materials also beat the S&P 500’s 1.9 percent rise, trailed by consumer discretionary, which underperformed with a paltry gain of 1.4 percent. That’s a notable surprise, said Yardeni, given the odds that President-elect Trump’s “expected tax cuts are supposed to put a nice chunk of change in consumers’ pockets.”
Some surprise big winners included department stores, which gained 13.3 percent; home furnishing retail, up 13.4 percent; and automotive retail, which increased 7.2 percent.
Industries that were dragged down were led by the internet and direct marketing retail sector, which declined 6 percent; auto parts and equipment, down 4.2 percent; real estate, off 2.4 percent; footwear, which lost 1.9 percent; and casinos and gambling, down 0.2 percent.
One big loser was the tech sector, which declined 1.8 percent.
However, intrepid investors who show their opportunism by jumping on badly beaten shares, are now snapping up some of the battered tech stocks, led by Facebook (FB), Google’s parent Alphabet Google (GOOGL) and Netflix (NFLX).
Facebook, one of the market’s huge winners in recent years, fell to $115 a share on Nov. 14. A month ago, it was trading at $130, close to its 52-week high of $133. Facebook bulls expect the stock to exceed its 52-week high in less than 12 months, in spite of Trump’s general dislike of the tech sector.
Google has been another big market winner but dropped to $750 a share on Nov. 11. It was trading as high as $835 less than a month ago, and hit a 52-week high of $839 earlier this year. Some analysts have a 12-month price target of $850.
And Netflix, which traded at about $127 a share less than a month ago, pulled back to $113 on Nov. 11. It regained a bit of its loss Thursday, snapping back to $115. The stock hit a 52-week high of $133 earlier this year.
The consensus on Wall Street is that the tech stocks will be among the casualties under the Trump administration. Not so, the tech bulls assert. Technology will have a way of convincing Trump, they argue, that Silicon Valley could be a friend and that innovation and technological progress can help economic growth.