New Highs For All Three Indices As Trump Tax Talk Helps Lift Economic Hopes

President Trump’s promise of a “phenomenal” tax policy announcement in the next two to three weeks appears to have put the markets into party mode.

All three major indices set new all-time highs Thursday, and stock futures indicated the possibility of additional gains Friday amid optimism about the tax picture and rallies in overseas markets. One concern among investors recently was that the administration hadn’t yet offered specific tax policy, particularly corporate taxes. It still hasn’t, but President Trump’s announcement Thursday that he’d soon share more details appeared to inject new vigor into Wall Street.

Trump mentioned taxes as he met with airline executives, and he also promised infrastructure spending. Despite his audience, he didn’t just discuss airport improvements, though that was in the conversation. He also talked about highways and high-speed rail. Those are the type of projects that conceivably have potential to lend a hand to companies in the materials, energy, financial, consumer discretionary, and industrial sectors, all of which, with the exception of materials, climbed in Thursday’s session. Financials made the biggest gain, advancing more than 1%.

Meanwhile, the rate-sensitive utilities sector, which had risen Wednesday, was the only sector to really fall much, as 10-year Treasury yields climbed back to 2.4% during the day. Yields are surging after being taken out to the woodshed earlier this week. 

Expectations for a March hike stood early Friday at about 9%, futures prices indicated, up from earlier this week but still below where they were before last week’s Fed meeting. Fed speakers aren’t delivering a consistent message, but Fed Chair Janet Yellen’s testimony to Congress next week is approaching fast, and perhaps she’ll shed further light.

When it comes to the Fed speakers, by the way, it’s important for long-term investors to try and shut out the noise. It’s interesting stuff and fun to read about, but ultimately, it doesn’t matter that much because Fed funds futures aren’t really moving too dramatically on these speeches.

As Treasury yields rose, other markets moved as well, with gold retreating slightly from its recent big gains and the dollar moving higher vs. the euro. Oil prices climbed more than 1.5% early Friday, so perhaps some of the dark clouds that seemed to gather over that market earlier this week are moving away (see below). Oil is up in part due to reports that OPEC is complying with its production agreement, according to media reports.

And yesterday’s U.S. rally appeared to have some wings early Friday, helping send overseas markets much higher. This was especially the case in Japan, where the Nikkei surged more than 2%. Asian markets may also have gotten a boost from news that President Trump told China’s President he’d comply with long-standing U.S. “One China” policy, media reports said.

Earnings season is starting to quiet down, though a few more big names remain on the horizon. From a data standpoint, it’s a quiet end to a mostly quiet week. Next week things pick up with inflation and retails sales data.

When there aren’t a lot of data and earnings on the calendar, it might be a good time for investors to think about long-term goals. And every trader is a long-term investor to some extent, because everyone wants to retire someday, right? With that in mind, remember that retirement accounts are an efficient way to put money aside for the future, and it’s a good idea to take advantages of the tax benefits of retirement accounts. Maximize your contributions to your IRA until the tax deadline April 18.

From a technical perspective, new resistance for the S&P 500 Index (SPX) appears at around the 2320 level.

Paging Dr. Copper?

With U.S. equities marching higher on growth expectations, it may be wise to keep an eye on some of the building blocks of growth, such as copper. As a key component to industrial production, from wiring and piping to electronics, copper has long been considered a proxy for global growth. After spiking more than 30% post-election, from below $2.10 a pound to over $2.75 a pound by the end of November, copper has since chopped along the top in search of a direction. It could be that the copper market got a bit ahead of itself, or perhaps there's concern that China, which consumes upwards of 40% of the world's copper, doesn’t share the same enthusiastic growth outlook.  

Is Oil Coming Or Going?

After a rough start to the week, crude oil appears to be on the comeback trail, with futures prices rising toward $54 a barrel by early Friday. But that doesn’t mean the market is out of the woods from a supply standpoint, or that a fall back into the $40s is out of the question. Something to ponder for the longer term is whether rising U.S. output and stockpile numbers, as well as signs of falling Chinese demand reported this week, might eventually push oil prices back below $50, and how much this could hurt the energy sector. Despite Thursday’s gains, energy sector stocks are down more than 4% year-to-date. A year ago, energy sector weakness contributed to an overall slump in the stock market, and energy’s woes arguably helped sap overall market strength earlier this week. In general, the energy picture seems to be playing a bigger role than it did in recent months, with some analysts saying that Thursday’s rise in oil helped the stock market. Friday’s weekly U.S. rig count could be worth watching to see if the recent climb in oil rigs continues.

Foreign Powers

Though some of the recent rally in bonds may reflect declining odds of a near-term rate hike, another factor could be foreign buying. Keep in mind that U.S. 10-year yields, though low historically, provide a far better payout than competing foreign bonds. The German 10-year bund, for instance, recently offered a yield of just 0.3%. That’s down from around 0.5% late last month. Rising bond prices overseas could be sending foreign buyers into the U.S. bond market for better yield, with the effect of pushing U.S. yields lower. That actually could be read as a little bullish, simply because it means the falling U.S. yields may reflect something other than concerns about U.S. economic health.