Even a partial government shutdown in the U.S. over the weekend could not stop the markets from rising Monday. Last Tuesday saw the Dow trade above 26,000 for the first time. While new records are nothing new for the Dow, especially since Trump took office, the rate of its ascension is worth noting. It took just six trading days to soar from 25,000 to above 26,000. That is the fastest 1,000 point move in the Dow’s history; while, from a percentage standpoint, every future thousand point move becomes worth less. Today’s market is a momentum investing paradise for investors riding the Trump effect to massive profits. Let’s take a minute to think of a few ways the Dow continues to new highs in 2018 and beyond.
3 Reasons the U.S. Stock Market Bull is Nowhere Near Over
- President Trump’s Tax Cuts and Jobs Act of 2017 is having the desired effect. Hundreds of billions in repatriated capital previously held offshore is returning to the U.S.; companies are showering their employees with bonuses, raising minimum salaries and reinvesting in domestic operations with plans to hire tens of thousands in the coming few years.
- The cyclical stage of the current U.S. bull market expansion suggests more gains lie ahead. We are in the optimism, not the euphoric stage.
- President Trump and the United States have momentum. Like a train roaring down the tracks, momentum can sometimes be an unstoppable force.
Let’s start with tax cuts.
How the average U.S. citizen feels towards the $1.5 trillion in tax cuts has changed markedly since being passed into law.
Art Hogan, chief market strategist at B. Riley FBR, explained,
“We’re just starting to see Corporate America tell us what a lower corporate tax rate means to the bottom line. We shouldn’t dismiss that.”
Dow up Almost 8,000 Points Since Trump Election
“Trump’s Treasury Secretary, Steven Mnuchin, has said economic growth spurred by lower tax rates would offset losses to federal revenue and actually reduce the debt.”
The U.S. has grown at 3% or more in the past two quarters. All eyes are now turning to Q4 with the first estimate due out later this week.
“The regional central bank’s “Nowcast” model calculated the economy was expanding at an annualized pace of 3.98 percent in the fourth quarter, quicker than the 3.92 percent rate calculated a week ago.”
If GDP comes in above 3% for Q4, which almost every estimate is forecasting, it will be the longest stretch (3 quarters) above 3% GDP in over ten years. Furthermore, numerous top money managers have predicted that if the U.S. economy can maintain growth of 3-3.5% the +$20 trillion deficit will slowly decline
U.S. GDP Tailwind to Bode Well for Momentum Investing in 2018
Over 150 companies gave bonuses following the tax plan. Walmart boosted its minimum wage to $11 and is giving out bonuses up to $1,000 for hourly workers.
AT&T, Comcast and Wells Fargo are giving out bonuses and or pay hikes following the tax cuts. Alaska Airlines, Aflac, AccuWeather and dozens of other companies joined a chorus of bonuses and compensation sharing plans. All of this is going to drive consumer spending and change the way Americans feel about the strength of the economy.
One of the world’s largest companies, Apple committed to directly investing $350 billion into the United States over the next five years, including $38 billion in repatriation taxes.
Apple is rushing to take advantage of a one-time tax break for firms who bring back cash to the United States under the new tax law.
Apple has already earmarked $55 billion of the $350 billion to be directly injected into the U.S. economy sometime in 2018. As part of how Apple will invest, to create 20,000 U.S. jobs over the next five years.
Momentum Investing Reigns Supreme in Bull Markets
Billionaire Ken Fisher is the Founder and Chairman of Fisher Investments. He made some bold predictions as 2017 came to a close.
“It’s taken us eight years to get to 2017, from 2009. Generally we’re just in that part that’s starting to ramp up. This bull market could easily go on, I’m not saying that it will, for another four years.”
“And, when you get to the euphoria phase, people won’t be worrying so much about when it’s going to end.”
Momentum investing is simply a strategy to capitalize on the phrase “the trend is your friend”.
Fed to Reduce Balance Sheet, Further Strengthening US Economy
In October, the Fed announced it would begin reducing its holdings by $10 billion per month. Moreover, that this amount would be raised gradually in the months ahead.
On October 30th, the Fed’s balance sheet stood at $4.455 trillion. On January 15th, according to the Fed’s website, it stood at $4.439 – about $16 billion less.
As the bonds the Fed furiously bought mature, it will refrain from reinvesting them. The central bank is starting with $4 billion a month in mortgage securities and $6 billion in Treasuries. It has plans to raise the amount every quarter until $20 billion in mortgage backed securities and $30 billion in Treasuries roll off. I’ll be watching this closely to see if the Fed follows through. While we are still years away from knowing if the Fed pulled off the greatest monetary experiment in history, growth in the U.S. economy is suggesting it has a serious chance.
Investing in the Era of Trump and Momentum
President Trump is always focused on the word momentum. Momentum investing is a strategy used by thousands of investors to profit from aligning one’s portfolio with the prevalent trend. Early on we dubbed Trump the Inflation President. Consequently, momentum was a key topic in his speech to the boyscouts last year. Trump on success:
“What makes you want to get up each morning and go to work? You have to find it. If you love what you do and dedicate yourself to your work, you will gain momentum. And look, you have to, you need, the word momentum, you will gain that momentum. And each success, will create another success.”
Trump goes on to tell an incredible story from Trump’s youth involving real estate developer, William Levitt.
Certainly, the US economy has momentum, things are lining up for the President and 2018 looks poised to be another year of gains.