The surprise election of Trump and his promise to cut taxes, stimulate the economy with infrastructure repair and repatriate offshore corporate funds has caused a rally in the stock Market. The question for traders is how long will the market rally last? Market Watch comments as the Dow breaks 19,000.
U.S. stocks continued their march into the record books Tuesday, with major indexes hitting their latest in a string of all-time highs, and both the Dow and S&P 500 topping psychological milestones.
The day’s gains were slight but broad, with only two of the S&P 500’s primary 11 sectors trading lower early. Consumer-discretionary names were the biggest outperformers, lifted by retailers.
The Dow Jones Industrial Average DJIA, +0.17% rose 30 points, or 0.2%, to 18,986, The Dow touched 19,013 early in the session, its first time at that level.
The Dow Jones 500, S&P 500 and the Russell 2000 all hit records. So long as the post-election narrative remains in place traders are buying on the story. Another story that is driving the market is that OPEC ministers will come to an agreement to cut back on oil production which would drive up oil prices and the value of US oil stocks.
Withdrawing from the Trans Pacific Partnership
During the campaign Trump was critical of virtually all trade relationships that the US has with other countries. He wants to scrap or at least re-negotiate NAFTA and says he will remove the USA from the Trans Pacific Partnership his first day in office. Those who believe in the story line that such acts will help US trade and business are happy and driving stock prices up. But, does starting a bunch of trade wars portend well for the US economy? The New York Times says that a trade war against China might not be winnable.
China’s economy would surely suffer if the United States were to impose a 45 percent tariff on nearly $500 billion worth of Chinese imports. The United States absorbs only 16 percent of Chinese exports, but it is China’s healthiest export market. Fears of American protectionism are already stoking capital flight from China.
But China might be better placed than the United States to take the blow. And it would certainly counterpunch. An editorial in China’s Global Times, a Communist Party mouthpiece, is probably not far off in its warning that American action would mean: “A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted.”
The threat of a trade war brings back memories of the Smoot-Hawley Tariff Act that was a major contributor to the Great Depression as noted by Investopedia.
The Smoot-Hawley Tariff Act is a U.S. law enacted in June 1930 which caused an increase in import duties by as much as 50%. The Smoot-Hawley Tariff Act goal was to increase U.S. farmer protection against agricultural imports. Once other sectors caught wind of these changes, a large outcry to increase tariffs in all sectors of the economy followed. The increase in this tariff added economic strain to countries during the Great Depression. Economists of the time signed a petition to urge President Hoover to not pass the act, but it was signed and passed anyway.
How long the market rally lasts will depend on success of economic stimulus is the USA and world markets remaining open for US products. A full-fledged trade war would in all likelihood be the nail in the coffin of a US stock rally.
How Long Will the Market Rally Last? PPT
