Is the Donald Trump rally over?
Refresh my memory. Is this the fourth, fifth, or sixth time I have been asked this question by traders since mid-December?
I don't even know. The ended up roughly 1.3 percent for the week. But because the market tapped out at 2,351 Wednesday afternoon, and has drifted lower since then, there is the by-now usual wailing and gnashing of teeth, wondering if the Trump rally is over.
Relax. The two underpinnings of this rally — the Trump Rally, and the reflation trade — are both very much intact.
The reflation trade — the rise in interest rates and the slow, near-synchronous improvement in economies in the U.S., Europe, Asia and Latin America — is continuing.
The Trump trade — the lowering of corporate taxes, the reduction of regulation, and an infrastructure spending program — is also still very much intact.
It's intact despite the fact that President Trump has indicated that Obamacare may be a legislative priority over tax cuts. It's intact despite the fact that Senator Mike Crapo, chair of the Senate Banking Committee, said on Wednesday that regulatory reform will take 12 to 24 months.
You can argue — as my old colleague Ron Insana has — that risk is undervalued.
I won't argue with that. We should have more significant profit taking, but we're not getting it.
That tells me there is still a lot of momentum. We hit another historic high of 2,351 on Wednesday.
Don't you think we should at least see some technical deterioration before we declare the rally over?
But just look at how the market acts. Betting on a market drop has been a total loser. On days like Friday and Thursday, when the markets are down, there is no significant volume, which is a positive.
Everyone is hopeful that the market drops more so they can buy the dips, not get out.
The alternatives? Bonds don't look attractive given inflation, another reason to stay the course.
Where do we go from here? Have you noticed that all the strategic experts have been too conservative? The average strategist has been at roughly 2,350 for the S&P 500 by year-end, with only a few in the 2,400 range.
Well, we are already there. We're at 2,350. And it's only February!
What about Trump? Of course, his unpredictability is a problem, but look at what happened with the immigration order. He found out that there were some checks on his unpredictability.
On the economy, there are more ways that he can help than hurt.
That tells me there is no reason we can't go through 2,400 on the S&P 500.
Bottom line: the global backdrop is getting better. The earnings outlook is improving. The advance/decline line remains strong. Market leadership remains in financials and technology, supporting the recovery in cyclicals. Companies are making good money in the current environment, so changing the rules is just more gravy.
My take: unless you believe that there will be a huge disappointment in earnings this year, it's hard to argue that stocks are dramatically overvalued.
The worst thing you can say is that the market is a hold, with no big reason to sell.
Sure, it's a little boring some days, the volume is light, and the narrative has stayed the same for a while, but consolidation is a good thing.
It's not a table-pounding buy, but net-net, there's no reason you shouldn't stay with stocks.