Dow Tops 21,000 After Trump Address to Congress

Dow Tops 21,000 After Trump Address to Congress

Both the President and the Fed gave stock markets reason to rally to another record high. Rate hike expectations boosted bank stocks, while the president's speech was short on details but struck a responsible, encouraging tone. 

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The overall movement across asset classes reflected growing investor confidence that economic growth is accelerating not just in the US but globally. The dollar rose, Treasuries fell, and the Dow Jones Industrial Average topped 21,000 for the first time. 

Two Fed officials said Tuesday that the case for raising interest rates on March 15 is stronger, with home prices in the US climbing, suggesting that the US will reach the Fed's two percent inflation target. Meanwhile, strong inflation numbers in Germany boosted European stocks on expectations of stronger growth in the EU. The Fed has kept an eye on global developments in its decisionmaking. 

The heightened expectations of raised borrowing costs boosted lending institution stocks. Goldman Sachs Group Inc. and JPMorgan Chase traded at all-time highs as financial stocks led the overall market gains. While Pres. Trump gave few specifics about his pro-growth plans to cut taxes and boost military and infrastructure spending, his address to Congress also did not give investors reason to doubt his intentions. 

Some political analysts speculate that Trump avoided specific proposals so that he would not inadvertently get in the way of Congress, which has to enact the policies through major, complicated legislative action. This left financial stocks free to surge the most since the week following the election, with bond futures suggesting a 65% perceived probability that the Fed will raise rates this month. Bank stocks led in Europe as well. Japan's markets also got a boost, in part because the yen weakened against the dollar. 

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Gold fell for a third day, reaching a technical support level and reflecting a move away from the safe haven and back into markets. Crude oil prices stayed in a range with ongoing concerns about oversupply from US shale producers. 

The most interesting shift may be the rotation by global investment banks and hedge funds away from US equities and into European equities. It's true that US stocks continue to surge, driven by enthusiastic buying from small retail investors. However, the big players seem to be taking profits on their US positions and looking to the European markets to supply the next wave of growth.

With the dollar surging, the weak euro is helping growth in EU companies. Moreover, while US stocks are at all-time highs, the Stoxx Europe 600 Index and other European indexes are well below their highs, with plenty of room to rise. With so many of the details in US fiscal policy yet to be determined, large institutions are hedging their bets with investments in other markets. 

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