Yesterday may have marked an inflection point in the US stock market. Today’s potential follow through, if it happens, will give us a better idea.
Domestically, Mr. Trump appears to be moving on from pressing his social program to tax reform–and, maybe, infrastructure spending, both of which are issues of potentially great positive economic significance. At the same time, results of the first round of the French presidential election (which pollsters got right, for once) seem to suggest the threat that France might leave the euro, thereby reducing the fabric of the EU to tatters, is diminishing.
yesterday’s S&P 500
How did Wall Street react to this news? The sector breakout of yesterday’s returns, according to Google Finance, are as follows:
S&P 500 +1.1%
Consumer discretionary +0.7%
Staples led the pack, presumably because this sector has the greatest exposure to Europe–and a rising euro. Financials advanced significantly also, on the idea that stronger economic growth will lead to rising interest rates, a situation that benefits banks.
Industrials and Materials perked up as well. Again, these are sectors that benefit from accelerating economic growth.
Energy marches to the beat of its own drummer. The rest are consistent with the story behind the winning sectors, either defensives or beneficiaries of moderate (that is, not rip-roaring) economic performance.
My guess is that this pattern may continue for a while yet. Personally, I’m most comfortable participating through Financials and IT.