MarketWatch 2017

The Trump “Bump” reached a new apex on the final day of November when the Dow Jones Industrial Average spiked 1.6 percent and surpassed the 24,000 mark for the first time. The S&P 500 also rose 1 percent and the Nasdaq a little less than 1 percent.1 The spike was further evidence of the rally that’s been underway since Trump’s election. The rally is based mostly on hope and optimism around the GOP tax bill, whose approval looked more likely on November 30 after Senator John McCain pledged his support.

It was another month of record highs for the stock market, whose laser focus on economic optimism continued to allow it to shrug off bad news and ominous headlines almost daily. A month that opened with lingering worries over North Korea and ended with another horrific terrorist attack in New York City also saw an escalation in the Russia investigation and more rifts between Trump and some Republican lawmakers.

Gains in technology stocks drove the S&P 500 to another record high on the last day of trading in September, although the Dow fell slightly. While it was another relatively calm month for the markets, we did see signs of nervousness creep in over everything from escalating tensions with North Korea to another Federal Reserve meeting.

For the most part, Wall Street continued clinging to its optimism over Donald Trump’s economic policies in August despite another tumultuous month for his administration. At the same time, we did see signs of worry creep in that Trump’s entire domestic agenda—including his tax plan—could be jeopardized by all the turmoil and distractions. Following the North Korea crisis and the fallout over Charlottesville, the Dow had its biggest one-day fall in over three months.1 We saw a similar slide back in March when Trump’s healthcare plan hit a brick wall. These are signs Wall Street knows it ultimately needs real reform to sustain its optimism, not just hope and promises.

July saw a continuation of the stock market’s disconnection from economic realities, and that trend reached new heights of irrationality in early August when the Dow Jones Industrial Average hit 22,000 for the first time ever.1 As Wall Street cheered, Donald Trump quickly claimed credit for the milestone—in truth, the market has been on an emotion-fueled upward trend for more than eight years. Though Trump’s election did add more fuel to the rally, the reality is that corporate earnings and other economic indicators continue to lag far behind the overinflated market.

For the most part, the stock market rally rolled on in July, shrugging off new controversies and setbacks in the Trump administration and the ongoing lack of any real substantive economic progress. Words like “modest” and “moderate” continued to dominate expert assessments of the economy—the same terms Fed Chairman Janet Yellen used in June to justify raising short-term interest rates for the second time this year.

The markets remained high in April but were also largely disconnected from economic reality. Reported corporate earnings reflected an annualized growth rate of just 0.7 percent for the first quarter of 2017.* That’s down from 2.1 percent growth in the fourth quarter of 2016, and even though both of those are positive numbers, neither is anywhere near 4 percent. Annual GDP growth of 4 percent is what Donald Trump has promised if his tax plan and other economic policies are approved—and Wall Street remains irrationally optimistic that he can, and will, deliver.

Apart from technology, equities cooled off a bit in March as reality started to set in: the Trump administration may have a tough time getting their agenda approved within their own party—let alone when dealing with the Democrats. The week of March 27 started with all the markets down and the Dow Jones Industrial Average culminating its eighth straight day of losses—its longest losing streak since 2011.* The slide was primarily prompted by what happened on Capitol Hill the previous Friday when Trump’s team failed to push its Obamacare reform bill through Congress mainly due to opposition from Republicans. The debacle clearly dampened the optimistic mood that had reigned on Wall Street since Trump’s election.

Throughout January and February, Donald Trump continued to talk up spending and talk down taxes, and the equity market loved it! The markets have taken Trump at his word, and all of this “expected” fiscal spending and investment in economic growth has been driving the markets to record highs. The caveat is simply: how will he pay for it?