Stocks once regarded as out of favor with President-elect Donald Trump have since started to rally after his news conference, The Wall Street Journal reports.
After the surprise election of Trump on November 8, markets eagerly embraced the prospects for an expansion of nominal gross domestic product driven by higher growth and higher inflation. Equities surged, the dollar strengthened and interest rates rose on signals that the new administration would pursue deregulation, tax reform and infrastructure spending.
The market moves were amplified by indications that, for the first time since 2011, Congress would try to enact presidential policy initiatives rather than seek to block them. It is also helped that, in contrast to a year ago, conditions in the rest of the world were relatively calm.
To be sure, U.S. stocks overall have been on the rise since the election on optimism that Trump's policies will benefit the economy. The S&P financial sector has jumped about 17 percent since the election, outpacing the S&P 500's 6.1 percent rise, Reuters reported.
But analysts fear the market has run too far too soon, with Trump's policies expected to hit legislature hurdles, and with stock valuations stretched.
However, but WSJ.com explained that all seemed to change after Trump spoke earlier this week for about an hour.
"Markets responded to Donald Trump’s rambling news conference on Wednesday by dumping Trump. The dollar and pharmaceutical and biotechnology stocks were sold, bonds were bought and stocks once regarded as out of favor with the president-elect outperformed," the Journal reported.
"This could be taken as a sign that investors prefer their presidents to be presidential. But it was also a confirmation of a move under way in the stock market for more than a month. The post-election Trump rally ran out of steam by mid-December, as hopes of a boom faded," the Journal reported.
"In the past month the optimism evaporated, with defensive sectors beating cyclicals and Treasury yields coming down slightly," the Journal reported.
Despite the gathering storm clouds, the S&P 500 still hit a new record last Friday, when the Dow Jones Industrial Average came within less than a point of 20,000 for the first time.
However, "the case for buying shares now is that the loss of enthusiasm for Mr. Trump within the market is just a pause after a rally driven by hope, while investors wait for signs of how the new president will behave," the Journal said.
"The concern is that the U-turn in Trump trades is a signal that the market is already paying more attention to Mr. Trump’s potential negatives, such as attacks by tweet on individual companies, aggressive diplomacy against China and the risk of a trade backlash," the Journal reported.
To be sure, Bloomberg View columnist and Newsmax Financial Insider Mohamed El-Erian agrees that the market wants to see and hear more details than the scant few vague generalities they have gotten from Trump so far.
"Financial markets are in the business of pricing not just current circumstances but also future events. As a result, they tend to be impatient," El-Erian explained in his recent blog.
"These days, they are eager to hear more details of what has been widely interpreted as the pro-growth policy agenda of President-elect Donald Trump. Without such specifics, the Trump rally in stocks will run out of fuel," he said.
But other respected economic gurus urge savvy investors to keep the faith and don't panic.
Veteran financial guru Larry Kudlow, who served as the Trump campaign's senior economic adviser, is very optimistic that the stock market can continue its record bull run, but warns that there will be some rough patches ahead.
Kudlow recently told CNBC Trump has the potential to be “a very dynamic leader” by reviving economic growth with his tax-cut strategy, which in turn will restore Americans’ optimism.
Kudlow also is a leading candidate to chair the White House Council of Economic Advisers, The Wall Street Journal reported, citing people familiar with the transition.The appointment would put an establishment Republican who served in the Reagan administration in charge of shaping economic analysis in the Trump White House.
“I’m an optimist on stocks but there are going to be corrections,”said Kudlow, a Newsmax Finance Insider, radio talk-show host and CNBC senior contributor.
“There are going to be corrections. I don't want to be Pollyannic. There are going to be tough corrections,” said Kudlow — host of "The Larry Kudlow Show" and author of "JFK and the Reagan Revolution: A Secret History of American Prosperity," written with Brian Domitrovic and published by Portfolio.
However, another respected financial icon points out that Trump alone may not be to blame for any apparent second thoughts by financial markets.
Republican hesitation on immediately enacting sweeping tax cuts has stalled the recent stock-market rally, preventing the Dow industrials from cracking the 20,000 milestone, Forbes Media CEO Steve Forbes recently told Newsmax TV.
The Dow industrials last week came within a whisker of the 20,000 milestone, but has since pulled back.
“We're almost there and the reason we haven't gone over is the question now is rising up ‘How hard are the Republicans going to push tax reform?” Forbes told "Newsmax Prime" host J.D. Hayworth on Wednesday.
“The reason the market went up after the election markets always try to anticipate the future,” said Forbes, author of "Reviving America."
“They don't wait for it to happen, they price it in right away. Well now in recent weeks Republicans are starting to make noises. ‘Maybe we shouldn't go for a big tax cut. Maybe we should wait until August. Maybe we should just focus only on healthcare,’” Forbes explained to Newsmax TV regarding Republican tax-strategy speculation.
“No. You got to do it all. And so this is where Trump will start to set the tone on Jan. 20 with executive orders undoing some of these crazy regulations from EPA and others, given the green light," Forbes explained.
“That'll set the stage for a much higher stock market.”
(Newsmax wire services contributed to this report).
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