Wall Street heard what it wanted to hear from President Donald Trump in his address to a joint session of Congress last night.
Or to be more precise it didn’t hear anything it didn’t want to hear. Trump waved in the direction of cutting regulations, repealing Obamacare, cutting taxes, and spending more on the military, education, and infrastructure. Ahead of the speech Wall Street had said it was hoping for more details on these ideas but this morning, absent such details, the consensus among investors is that it’s grand to wait for those details. This morning U.S. stocks are in new high country again with the Dow Jones Industrials up 1.29% as of noon New York time, the Standard & Poor’s 500 up 1.23% and the more volatile small cap Russell 2000 index ahead 1.76%.
I think these three quotes from Wall Street sum up the reaction:
“Broadly speaking, President Trump did not materially resolve key uncertainties regarding the outlook for economic policy. We believe it will take many months before we have clear answers to all of these issues”–Nomura Securities.
“There were very few numbers mentioned, but the speech did reference “Massive tax cuts for the middle classes”, and did talk up big infrastructure spending, including repeats of the “$1trn” infrastructure spending commitment. Paul Ryan did clap this, and even stood up, though maybe it would have looked odd if he didn’t, as Vice President Pence did so. Perhaps Paul Ryan’s smile was a little more forced at this point…you decide”–ING Bank.
“Getting approval for changes was always going to take time, but the real question is whether the absence of details causes the market to worry about procrastination. The core theme remains ‘U.S.’ over ‘international'”–Jefferies Group.
But there were a few dissenting voices:
“We raise our 2017 year-end target to 2,450 to reflect increasing likelihood we are entering a typical end-of-bull-market rally,” said U.S. equity analysts at Bank of America. “The stock market has always seen outsized returns leading up to its eventual crash, and we think this time will be no exception.” Bank of America’s previous year-end target was 2,300. The average estimate on Wall Street is 2,364, according to Bloomberg, with the highest and lowest predictions sitting at 2,500 and 2,275. The S&P 500 was at 2396.61 as of noon today.
And this from equity strategists at HSBC via Bloomberg: Since October, global funds have made a significant rotation out of U.S. stocks into Europe (excluding the United Kingdom) and into Japanese equities. Goldman Sachs and JPMorgan Asset Management both predict that European stock returns could exceed those of U.S. peers in 2017. Today the French CAC 40 Index is up 2.10% and the German DAX is up 1.97%; both gains are larger than those for U.S. indexes.