Oil Gains, Fed Resignation Fuel Stock Record

Oil Gains, Fed Resignation Fuel Stock Record

News drove US stocks to extend their record-busting rally on Friday, with a grab bag of bullish or possibly bullish events fueling optimism and speculation. Not all the news was concrete, but the combination was enough to trigger a series of buy programs. 

Rising to new heights |
Rising to new heights | Getty Images

Among the more fundamental reasons for the broad-based rally was a rise in crude oil prices. West Texas Intermediate crude futures today rose about 1.6% to a high of $53.81. 

Some of that rise may be due to a concurrent rise in the US Dollar Index. The dollar has been in a rally since the beginning of February, with only one down day in the last ten. Today's rally may just be a continuation of the trend, but one comment by Pres. Donald Trump did set off a wave of buying. 

The president met with Japanese Prime Minister Shinzo Abe in Washington today, holding a joint press conference just one day after a phone call with Chinese President Xi Jinping. During that call, Trump reversed his earlier pro-Taiwan comments and affirmed his commitment to the "One China" policy that has been central to US-China relations since 1972. 

Prior to the election,the president had promised to officially declare China a currency manipulator on Day 1. And last week, he charged—and Japan denied—that Japan was also manipulating its currency to maintain an artificial weakness against the dollar in order to boost exports and weaken imports of US goods. In this week's talks, however, Trump softened his tone somewhat. 

Nevertheless, he still asserted that the currencies of the US, Japan, and China would all soon be on a level playing field. He said, “That’s the only way it’s fair. That’s the only way you can fairly compete in trade and other things. We will be on that field and we will all be working very hard to do great for our country but it has to be fair and we will make it fair.”

The statement puzzled some observers, but it did lead to a selloff in the US dollar, followed by a rebound that left the dollar positive on the day. The other major announcement from the White House was also confusing for some, particular some members of Congress, but may have helped fuel market optimism. 

The White House announced that in two or three weeks it would reveal a new tax plan. The tax plan, crafted by the National Economic Council led by former Goldman Sachs president Gary Cohn, was first mentioned when the president met with US airline executives Thursday and told them he had a "phenomenal" plan being developed in consultation with Congressional leaders. 

Several news organizations contacted House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell's offices after Trump again mentioned the tax plan during the Abe news conference and specifically named them. Those offices had no comment and other Congressional Republican leaders apparently were not aware of the existence of the plan. Despite the mystery, many investors welcomed the news on expectation that it will include tax cuts for corporations and the wealthy, with new tax exemptions on offshore income. 

Other news was less speculative in nature. On Friday morning, Federal Reserve Governor Daniel Tarullo announced that he will retire around April 5, even though his term only ends in 2022. Tarullo is the Fed's chief regulator of Wall Street banks. His resignation could make way for a more lenient regulator. With the departure of SEC Chair Mary Jo White, an Obama appointee known for her tough enforcement of regulations, that position will be filled by Wall Street lawyer Jay Clayton, who has expressed disdain for many of those same regulations. With both positions held by deregulation advocates, Wall Street will have little opposition if it seeks to return to the kind of financial engineering it tried in the 2000s. 

Though economists agree that deregulation was a major cause of the financial crisis of 2008, the markets appear to be bullish about returning to that same lax governance. Tarullo's announcement was followed by a surge to new all-time highs in all major US indexes. Neil Dutta, an economist at Renaissance Macro Research, sent out a client notice that simply said, "Buy banks." Investors did, and with the dollar volatile and oil, gold, and copper rallying, they bought a lot of other things as well. 

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