Trader Talk

Despite whining, markets show no signs of being worried about a slowdown in the Trump agenda

Pisani: Market rally 'not just Trump'

Are the markets worried about a slowdown in the Trump Agenda?

Some are indeed worried about it, but the markets are keeping the faith—at least so far.

Greg Valliere at Horizon Investments summed up the concern this morning: "[O]ne of the reasons the stock market rallied in recent months was the prospect of action in Washington on these four major bills—and suddenly they seem bogged down."

He was referring to the core Trump Agenda of lowering taxes, reducing regulations, and enacting an infrastructure reform bill, and replacing Obamacare.

Regardless: the markets have shown no signs of losing faith that this agenda can get passed, at least not yet.

Consider that stocks rallied this morning as President Trump, meeting with retail CEOs at the White House, reiterated that he "will lower rates very, very substantially, including personal and business" rates.

While the president did not mention tax cuts during his press conference with Israeli Prime Minister Benjamin Netanyahu, the trading community is expecting that he will flesh out his tax cut plan during his address to Congress on Feb. 28. It's likely his team may leak details out ahead of that speech.

Another reason the markets are not falling apart is that it's not just about Trump. I noted yesterday that the rally has turned global. The global economy--and global earnings--are improving.

We also saw further evidence this morning that the U.S. economy was continuing to improve. Consumer prices--a gauge of inflation--and retail sales in January were both stronger than expected. Strong retail sales indicate the U.S. economy continues to improve. Higher consumer prices — which are up 2.5 percent year over year, the highest in almost 5 years — indicates that the so-called "reflation trade" is very much in place, a trade that is lifting prices on everything from commodities to finished goods, and lifting profits as well.

President Donald Trump attends the National Prayer Breakfast in Washington, U.S., February 2, 2017.
Carlos Barria | Reuters

Still, the chorus of those calling for a correction is getting louder, like this from veteran market watcher Tom McClellan: "Complacency is rampant, and it must be punished."

Yikes! Is there anything else missing? Not surprisingly, technicians are griping that markets are hitting new highs on light volume, and that this may be a sign of waning investor confidence in the rally. Here's Evercore ISI's Ed Hyman: "[O]ur guess is that it's unprecedented to have the S&P up this much with volume still lagging."

Well, maybe. It's true the NYSE's Composite Volume — the total volume in all NYSE stocks traded on all exchanges — has had some mighty big volume days from the election through mid-December, and then on many days in January, when daily volume often exceed 3.6 billion shares. In the 10 trading days of February so far, volume has averaged about 3.3 billion shares, a drop of roughly 10 percent.

But given the distractions the Trump administration has been dealing with, it's not surprising that buying interest would wane on days when little or nothing is heard on the Trump agenda. The heaviest volume last week occurred on Thursday, when the president met with airline CEOs and commented about the "phenomenal" tax plan coming.

The heaviest volume day of the week occurred in the middle of the biggest snowstorm the Northeast has seen so far this year, when many traders never even came to work!

What does that tell you about enthusiasm for the Trump Agenda?