The Trump Rally went ballistic Wednesday, with U.S. large-caps melting to new record highs in what could only be characterized as a buying panic.
The Dow Jones Industrial Average is less than 500 points from the 20,000 threshold and is up more than 8% from its pre-election low. Impressive stuff considering we are likely just a week away from another Federal Reserve interest rate hike.
No specific catalyst was responsible for the move, which featured some countertrend activity in areas like bonds, volatility and commodities.
In the end, the Dow Jones Industrial Average gained 1.6%, the S&P 500 gained 1.3%, the Nasdaq Composite gained 1.1% and the Russell 2000 gained 0.9%. Treasury bonds were stronger, the dollar weakened, gold gained 0.6% and crude oil fell 1%.
In a reversal of recent tendencies, yield-sensitive sectors like telecoms and REITs led the way with gains of 2.4% and 1.9%, respectively. Healthcare was the laggard, down 0.8%, after President-elect Trump told Time for his Person of the Year interview that he was going to bring down drug prices.
Hard drive maker Western Digital Corp (NASDAQ:WDC) gained 8.3% after raising its fiscal second-quarter earnings-per-share guidance by nearly 12% on continued strong consumer demand and a favorable product mix.
Memory maker Micron Technology, Inc. (NASDAQ:MU) gained 7.3% after being initiated with a “buy” rating by Citigroup, citing improving fundamentals in the DRAM industry on lower supply and stabilize to improving demand.
Drone and EV charger maker AeroVironment, Inc. (NASDAQ:AVAV) fell 5.9% on a fiscal second-quarter earnings miss on weak sales of its Unmanned Aircraft Systems.
The day’s theme, as mentioned above, was reversals of recent trends as bond yields declined slightly. The result was that pretty much everything moved higher: Equities large and small, bonds, gold and even the CBOE Volatility Index of “fear gauge,” as apparently many on Wall Street are worried the gains may not stick. (Crude oil was the exception.)
It’s worth noting that seasonality suggests the Trump rally could hit headwinds in just a couple of weeks. David Rosenberg of Gluskin Sheff notes that practically every new president since Truman enjoys a “Honeymoon Rally” in the weeks following their election. The median advance the month after an election is nearly a percent vs. the 6.6% rally for Trump. Ronald Reagan enjoyed a 6% rally his first month in office.
But less than four weeks into Reagan’s term, the market peaked. The next two years were marred by an economic downtrend and a 25% decline in stocks as a combination of higher interest rates, Fed policy tightening and a stronger dollar took its toll.
Despite today’s one-day reversal of trend, all three dynamics are still in play right now.