Trader Talk

Trump hope trade is very much alive, but watch out for the Fed

Dow hits 21,000 for the first time

Stocks are rallying at the open, as the Trump "hope trade" remains very much alive. But can it survive the Federal Reserve?

The markets wanted more specifics on President Donald Trump's proposals on tax reform, infrastructure spending, and reduction in regulations. It didn't get it.

It didn't get anything on a lot of things: nothing on banks or financial reform. Nothing on housing finance reform. Nothing on Russia or China. Almost nothing on energy. Nothing on the upcoming fight over raising the debt ceiling. The emphasis was on Obamacare and immigration, with some mention of border tax issues.

No matter: traders almost unanimously have viewed the speech as a success. The market got something that is perhaps more important: it got a speech which clearly implied that there was a good chance the president could accomplish those goals.

That's a key factor in why the rally has been sustained, and why it hasn't experienced any significant selloffs. Investors have given Trump the benefit of the doubt, and as long as they believe he can push through the agenda the rally will hold up.

Next up is the Fed. Chair Janet Yellen speaks on the economy in Chicago on Friday. The CME Fed fund futures now has the probability of a March rate hike at 70 percent, with two-year Treasury yields near the highest levels since 2008. The Fed's preferred inflation indicator, the Personal Consumption Expenditures (PCE), which measures prices paid by consumers for goods and services, was 1.9 percent year-over-year, the highest level since 2012.

President Donald Trump addresses a joint session of the U.S. Congress on February 28, 2017 in the House chamber of the U.S. Capitol in Washington, DC.
Getty Images

I don't normally bring up these indicators, but I got an earful from stock traders this morning— the gist of it being, "Hey, Bob, the Fed may be getting a lot more aggressive on rates!"

The Fed sure wants you to believe March is in play for a rate hike. Yesterday the New York Fed's William Dudley said the case for raising rates "has become a lot more compelling." San Francisco President John Williams said March was "very much on the table for serious consideration."

With rates again moving up, banks are the biggest gainers at the open.