01.17.2017
By Terry Flanagan

TRADING THE WEEK: Trump Rally Loses Steam

All eyes on The Donald.

That’s the trading view of this holiday-shortened week, as Donald J. Trump is set to take office as the 45th U.S. President on Friday, January 20.

Following an extended period of uncertainty that hung over financial markets prior to the Nov. 8 election, the subsequent six to eight weeks were something of a honeymoon, as markets rose on expectations of expansionary fiscal policy and a scaling-back of regulations. More recently, market indices have leveled off and interest rates have edged lower, indicating that the market’s speculation tank is nearing empty, and evidence is needed to support further gains.

That opportunity presents itself starting at noon on Friday. “It’s go time,” said one agency-brokerage trader. “Let’s see if Trump follows through on being the business-friendly president that people are expecting.”

Daily U.S. equities trading volume averaged 6.73 billion shares for the week ended January 13, up modestly from 6.47 billion shares in the previous week, according to Bats Global Markets. Trading ebbed as the holiday week neared, and it may be on the slow side this week given the Martin Luther King Jr. holiday on Monday and Friday’s inauguration.

Stock trading has been a different ballgame since Trump was elected, and it will likely continue to be so when he becomes president. Indices overall have churned higher, but some sectors, such as financials, have done better than others. Also, the biotechnology space has been hit when called out by @realDonaldTrump on Twitter, as have some individual manufacturing companies.

“Correlations have changed,” said a proprietary trader. “You really have to watch what Trump says. He throws a curveball now and then but I think most of us have adjusted.”

The other recent major driver of market activity, interest rates, has receded a bit into the background, at least in the very near term. The Federal Reserve is expected to lift rates three times in 2017; that number is subject to change, but the next Fed meeting isn’t until mid-March.

“It all depends on the data,” said the agency trader, referring to when shifting Fed expectations will again move markets. “It could be this week. It could be next month. For now the market is pricing in two or three moves this year.”

This Week’s U.S. Economic Indicators of Interest:

Monday MLK Holiday
Tuesday Empire State Index
Wednesday Consumer Price Index

Industrial Production

Home Builders’ Index

Thursday Jobless Claims

Housing Starts

Friday Inauguration Day

 

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