After a brief hiatus, the Dow Jones Industrial Average resumed its march toward 20000, crossing the no-longer elusive milestone on Wednesday as President Donald Trump demonstrates his seriousness about fulfilling campaign promises of lower taxes, less regulation, and more fiscal spending.
The blue-chip index’s march to the psychologically-significant level has captivated Wall Street since Trump’s surprise election in November. After blowing past the 19000 mark just 14 trading days after Election Day,Opens a New Window. and coming within a fraction of a point of 20K, the index stalled as investors awaited more concrete evidence the president would follow through on the issues he championed on the campaign trail.
Strength in the materials and financials sectors helped push the Dow across the line after Trump on Tuesday gave the green light for the construction of the Keystone XL and Dakota Access PipelinesOpens a New Window. – two projects that stalled under President Barack Obama’s administration. In recent days, Trump has also met with U.S. business leaders, including the chief executives of the Big Three American automakers amid a push for more domestically-built automobiles.
Financial-sector stocks have also been a key element in the post-election rally that has led not only to Dow 20K, but fresh records on both the S&P 500 and the Nasdaq Composite indexes. While action in the sector cooled in recent weeks, improving global economic growth and consolidation in the U.S. dollar/U.S. Treasury yields has been a support for risk assets, said Dennis DeBusschere, senior managing director at Evercore ISI.
“A weak U.S. dollar and an accommodative Fed are in the new administration’s best interest and as long as a significant policy ‘mistake’ is avoided, risk assets should move higher as economic growth improves,” he said.
Trump’s fiscal policies, though, are just one piece of the 2017 market puzzle. With expectations of added stimulus from Washington, policymakers down the road from the White House at the Federal Reserve are calculating the pace at which the short-term federal funds rate will need to increase to keep up with a growing economy while also not allowing it to overheat. The Fed in December said it expects three 0.25 percentage point rate increases this year, which it believes will allow inflation to move closer to the 2% target while the job-creation rate remains steady.
In that environment, investors may stand to benefit from putting more weight on cyclical stocks including financials, energy, consumer discretionary and real estate, rather than in defensive sectors that include health care and utilities.
“What we’re likely to see in 2017 is a resumption of an earnings-driven market where there’s tangible earnings growth.
That’s going to be essential to sector performance,” said U.S. Bank Private Client Group Chief Investment Officer Bill Northey.