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The Trader: Stock Rally Pauses to Ponder Trump Presidency -- Barron's

21 Jan 2017 11:01 am
By Ben Levisohn 

Vital Signs

The inauguration of a president who has promised so much change brought surprisingly little of it to the stock market last week.

The Standard & Poor's 500 index fell 0.1% to 2,271.31, while the Dow Jones Industrial Average fell 58.48 points, or 0.3%, to 19,827.25. The Nasdaq Composite sank 0.3% to 5,555.33.

Evidently, there were no fireworks in Donald J. Trump's inauguration address. Sure, he highlighted his "new vision," one that will make every decision "benefit American workers and American families." He promised to bring back jobs, build roads, and "follow two simple rules: Buy American, and hire American." What his speech lacked, however, were the details, leaving investors to wonder exactly how those changes would be brought about and what the impact will be.

"The tone of the speech was 'change is in the air,' " says Barry Kupferberg, director of research at Trilogy Capital Management. "But people are still trying to figure out what exactly will change."

It isn't that we don't know the broad outline of what Trump would like to do. He's pledged to spend billions on infrastructure and to cut taxes -- policies that stand a good chance of boosting economic growth -- but also initiating other policies that sound like protectionism, though he would call it "free and fair" trade. Hopes for the former were responsible for the S&P 500's 8.1% rise since the election. The latter, however, could be a major source of consternation. "There are expectations that some positives are going to come out of the Trump administration," says Jeff Rottinghaus, portfolio manager of the T. Rowe Price U.S. Large Cap Core fund. "If they don't, the market is susceptible to a correction."

Or simply volatility. Yes, the major indexes have been quiet, but we might have gotten a glimpse of the future last week as individual stocks reacted to the confirmation hearings for Trump's nominees. United States Steel (ticker:X) soared 8.3% on Wednesday when Commerce Secretary nominee Wilbur Ross said the U.S. might need "more tariff activity" to head off China's dumping of steel and aluminum. Fannie Mae (FNMA), however, tumbled 4.3% on Thursday when Treasury Secretary nominee Steven Mnuchin said he didn't support a plan to recapitalize the government-backed enterprises and make them independent.

That could take stocks on a roller-coaster ride during the first 100 days of Trump's presidency. Brian Belski, chief investment strategist at BMO Capital Markets, believes the new president is aware of recent history -- how easy it is for a united government to become divided again at the mid-term elections -- and will try to get a lot done quickly. That's "setting the stage for surprises in both directions," Belski says. "But the market is making a big mistake if it bets on gridlock."

Change is coming...whether the market likes it or not.

See Trader Extra: Dump Disney

Email: ben.levisohn@barrons.com

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(END) Dow Jones Newswires

January 21, 2017 06:01 ET (11:01 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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