Financial Times

Green lights for Trump projects push Dow past 20,000 milestone

by Nicole Bullock and Adam Samson, Financial Times

January 26, 2017 | 10:44 am
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Order signed for Mexican border wall; Boost for sectors central to infrastructure push

Donald Trump’s moves on infrastructure and deregulation have reignited investor confidence in the US economy, propelling stocks into record territory and sending the Dow Jones Industrial Average above 20,000.

Mr Trump was quick to note the milestone for the blue-chip average, tweeting “Great!” with the hashtag “#Dow20K”. But bullish sentiment was not confined to the Dow, an idiosyncratic index that tracks just 30 popular stocks driven by companies with the highest share prices.

The broader S&P 500 benchmark also hit new highs, helped by rallies in ­sectors directly affected by Mr Trump’s first executive actions – including requiring that domestic steel be used for US pipelines and building a wall along the Mexican border.

Investors have poured money into shares of banks and other cyclical companies on hopes that a mix of tax cuts and fiscal stimulus from the Trump administration will accelerate economic growth and inflation.

“With a swift move towards signing executive orders, coupled with underlying positive economic data, clarity has begun to hit the headlines and all the US indexes are celebrating,” said Quincy Krosby, at Prudential Financial.

After a strong post-election rally late last year, the Dow spent more than a month stalled just below 20,000 as investors awaited greater clarity on Mr Trump’s policies. When it passed the threshold, “a loud roar” was heard on the NYSE floor, its governor Rich Barry said. Traders pulled out Dow 20,000 caps they had had ready since about a week after the election, he said.

In mid-afternoon in New York, the Dow was up 0.8 per cent at 20,069.15, while the S&P 500 was 0.7 per cent up at 2,296.05. It is 18 years since the Dow passed 10,000, in March 1999.

Launched in 1896, the Dow has surged nearly 9 per cent since Mr Trump’s November victory. As a price-weighted average, the Dow has been catapulted higher by strong gains in those member companies with the sharpest share-price movements.

Goldman Sachs has accounted for 367 points of the Dow’s 1,735-point march higher since election day as its shares have climbed about 30 per cent. Boeing, the aerospace group, has contributed 171 points and IBM 163 points.

The S&P 500 – a benchmark created after the Dow and based on market capitalisation – is far more important to professional investors since it captures a broader cross-section of corporate America. It has trailed the Dow’s gains, rising 6.6 per cent since election day.

While the Dow’s march to 20,000 has captured attention, the “degree to which markets can manage to retain their collective stability and constructive trends” is of far more importance, said Peter Kenny, senior market strategist at Global Markets Advisory Group.

The Trump administration’s proposals on infrastructure spending, paring of regulations and a defensive trade posture have lifted expectations for both inflation and economic growth, boosting the shares of miners.

“The reflationary trade of last year and earlier this month has now moved to more of a legitimate inflationary trade, and that is why you have seen a bid for gold and other things that are inflation protection-type investments,” said Michael Underhill, a portfolio manager at RidgeWorth Investments.


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by Nicole Bullock and Adam Samson, Financial Times

January 26, 2017 | 10:44 am
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