Is the so-called Trump stock rally over?
That question is up for debate on Wall Street, and for good reason. U.S. stocks surged as much as 12% after Donald Trump’s election, posting a series of new highs and hitting long-awaited milestones, before falling in March for the first time since October.
April historically is a pretty decent month for the market — third best behind July and December — with the Standard & Poor’s 500 Index rising an average of 1.3% since 1928. This year, the month could be especially eventful. Here are three things investors are watching:
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1. Politics as unusual
If it seems impossible to escape politics, the stock market offers little refuge. President Trump doesn’t get sole credit for the postelection rally — his ascendancy coincided with better economic and corporate-earnings reports — but investors are watching his every move now to gauge whether he can deliver on his pro-growth promises.
April 29 will mark a much-talked-about, if somewhat arbitrary, milestone: Trump’s 100th day in office. The president is coming off the stalling-out of a Republican-backed health care proposal, which spurred a small market sell-off and led investors to question whether some of his other campaign promises are in jeopardy. Up next? Tax reform.
“The president doesn’t have the kind of mandate or leverage that many on Wall Street thought he has,” says Matt Maley, managing director at Miller Tabak & Co., a capital markets firm in Newton, Massachusetts. “The stock market is pricing in a scenario that is too bullish on how much Trump will be able to get — and especially how fast he’ll be able to get it.”
It’s not just U.S. politics at stake. In the wake of the surprise Brexit vote last year, investors have to keep an eye on Europe — and an upset in France’s presidential election could spur market turmoil. Marine Le Pen has pledged a referendum on withdrawing France from the European Union if elected, and while she’s not leading most polls, investors don’t want to be surprised again. France will hold the first round of its presidential election April 23; the process could stretch into May if no candidate wins a majority.
2. Looking for proof in the pudding
Much of the early year market euphoria — when the Dow Jones industrial average surpassed 20,000 and 21,000 shortly thereafter — has died down, and April will see the return of corporate earnings season, a closely watched event in the market.
The weeks-long period when companies report first-quarter results will commence in early April. It will provide important context — both hard numbers, like revenue, and commentary from company leaders — for investors to better understand how corporate America is faring under the new president.
Corporate earnings, especially those that are a positive or negative surprise, can cause major moves up or down for individual stocks, which in turn can move the broader indexes. In aggregate, these results help inform investors’ opinions about the direction of the market, economic growth and stock prices.
April also will bring a customary slew of economic reports, including ones on job creation, consumer spending, manufacturing and measures of inflation. Economic activity generally has been strong in recent months, which gives investors less reason to fret. It also provided the foundation for the Federal Reserve to raise short-term interest rates in March.
Even so, Maley says there’s one area of concern: real wage growth. Bureau of Labor Statistics data show that average hourly earnings, adjusted for inflation, have been flat or falling on a year-over-year basis for several months, which raises questions about consumers’ ability to keep spending at current levels, he says. The agency’s next report is scheduled for release April 14.
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3. One eye on the future, one on the past
The Fed raised interest rates for only the third time since the financial crisis at its most recent meeting, and investors are trying to anticipate when the next increase is coming. Just as important, they’ll be looking for confirmation that the central bank plans to stay on track for a total of three rate hikes this year, as Fed Chair Janet Yellen has signaled.
One place to look for clues will be the minutes from the Federal Open Market Committee’s March meeting, which will be released April 5.
Why look backward for clues about what’s ahead? Minutes from the eight-a-year meetings provide details about what influenced policymakers’ decision to raise rates and the path of hikes to come.
Putting the pieces together
Even though growth appears to be robust on most fronts, investors will look for confirmation of the economy’s vigor from corporate earnings reports, and they’ll monitor political developments that could further derail the postelection rally.
March marked the eight-year anniversary of the bull market, and because the major gauges have more than tripled during that period, there’s increasing trepidation about when the next major sell-off is coming — and what will cause it. Pessimism about the trajectory of stock prices climbed to a one-year high among individual investors in early March, according to a weekly sentiment survey by the American Association of Individual Investors, though it settled somewhat in the two weeks that followed.
Following the postelection trend, investors will be watching the evolving relationship between Trump and the market — while keeping an eye out for any surprises that come up in the month ahead.