U.S. equities narrowly surged to a new record high on Thursday as investors continue to view President-elect Donald Trump’s economic policies — tantamount to a huge fiscal stimulus of tax cuts and infrastructure spending — as a positive for a swath of industrial, materials and energy stocks.
But the rally was narrowly participated in, with many areas of the market including Big Tech stocks lagging on worries Trump’s immigration and trade policies could hamper profitability. Specifically, much of Silicon Valley has relied upon skilled H1B visas to hire cheap programmers. If the program is shut down, wages are going to drift higher impacting earnings.
In the end, the Dow Jones Industrial Average gained 1.2% to hit a new high, the S&P 500 Index wafted up 0.2%, the Nasdaq Composite lost 0.8% and the Russell 2000 ended up 1.6%. Elsewhere: The dollar was broadly higher, gold lost 0.6% and oil fell 1.4%.
Treasury bonds continued their recent selloff on a combination of higher inflation expectations and estimates from the Committee for a Responsible Federal Budget that Trump’s plans could double the national debt. The iShares 20+ Year Treasury Bond (NYSEARCA:TLT) lost another 1.5%, pushing the UltraShort Treasury Bond (NYSEARCA:TBT) recommended to Edge subscribers to a gain of nearly 24%.
Other catalysts include continuing hawkishness on the December rate hike from the Federal Reserve and indications of Treasury reserve selling by China and other nations.
Specifically, St. Louis Federal Reserve President James Bullard said a December hike was reasonable, San Francisco Fed President John Williams said he expect inflation to hit their target in the next year or two, and Richmond Fed President Jeffrey Lacker said a fiscal stimulus boost (of the type Trump could initiate) would lead to a steeper path of rate hikes. A Reuters article on Trump’s plans argued this is exactly the type of fiscal support the Fed has been clamoring for and should ease their efforts to normalize interest rates.
Higher long-term interest rate have been a huge boost to financial stocks, which gained another 3.7% as a group, as a steeper yield curve increase net interest margin hopes. In addition, there is optimism that Trump could dump the Dodd-Frank financial reform act for something different. (Investors, for now, are ignoring the GOP’s platform which calls for the restoration of the Glass-Steagall act separating investment and commercial banks.)
Retail stocks were on the move, with Macy’s Inc (NYSE:M) and Kohl’s Corporation (NYSE:KSS) up 5.6% and 11.5%, respectively, on results. Shake Shack Inc (NYSE:SHAK) gained 10.7% on a third-quarter earnings and revenue beat thanks to sold comp-store sales. Twitter Inc (NYSE:TWTR) fell 4% on the departure of the chief operating officer. And Walt Disney Co (NYSE:DIS) fell 2.5% after the close on disappointing results.
Technicals remain challenging as tech stocks flounder. Less than 45% of the stocks in the New York Stock Exchange are above their 50-day moving average vs. 80%-plus back in July. And, incredibility, there were 205 net declining issues on the NYSE, down 517 from Wednesday.
For now, I recommend caution including a position in the Apple Inc. (NASDAQ:AAPL) Nov $110 puts, which surged 216% for Edge Pro subscribers since they were recommended on Wednesday. Not bad for a one-day gain.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
