Stocks soar as year-end rally gains steam
Not even the threat of an interest rate hike next week from the Federal Reserve could derail the U.S. stock market's record-setting run as Wall Street posted its best five days since the presidential election and doubled down on its bet of better times ahead under new political leadership at the White House.
The bullish vibe on Wall Street is best illustrated by the blue chip Dow Jones industrial average, which surged nearly 600 points, or 3.1%, on its way to posting a fresh all-time high on each trading day of the just-ended week.
The Dow, which is up 13.4% this year, is now within 243 points of Dow 20,000, a milestone few imagined was possible at the bottom of the bear market back on March 9, 2009, when the Dow fell to 6,547.05.
The Standard & Poor's 500 index, Nasdaq composite and small-stock Russell 2000 also finished the week at record levels.
"The good times keep rolling," says Alex Eppstein at Schaeffer's Investment Research. "With stocks red hot, confidence is on the rise."
Driving the rally was a report Friday that showed consumer confidence at its highest level in nearly two years, a signal that U.S. consumers "like the direction president-elect Trump is going to take on the economy," Chris Rupkey, chief financial economist at MUFG Union Bank, told USA TODAY.
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"Consumer caution during the presidential campaign with its over-the-top reality TV rhetoric has been cast aside as consumers are sitting down and taking a close look at what the change in Washington means for them dollars and cents wise," says Rupkey. "It looks like tax cuts, the promise of more jobs, and steady stock market gains is ... bolstering confidence to the highest level since January 2015."
There's been a gain in risk-taking, which could create a further boost for the U.S. economy, Michelle Meyer, senior economist at Bank of America Merrill Lynch, said in a note to clients.
The big gains came even though Wall Street is pricing in a nearly 100% chance of an interest rate hike from the Federal Reserve Wednesday, its final meeting of the year. Wall Street is expecting a quarter of a percentage point rise by the Fed, which would mark the U.S. central bank's first rate hike of 2016, despite forecasts at the start of the year for three or four hikes.
Following the Fed's meeting Wednesday, Wall Street's attention will turn to its policy statement, its updated projections for the economy, inflation and future rate hikes, as well as Fed chair Janet Yellen's comments during a press conference with reporters.
The big run-up in stock prices, up to this point, has been based mainly on hopes that Trump's policies will boost economic growth as well as corporate sales and profits.
But at least one Wall Street pro says the sharp gains since Election Day have to cool off soon.
"Given the 6% move in the stock market since the U.S. elections, a "breather" seems likely, Tobias Levkovich, chief U.S. equity strategist at Citigroup, said in an end-of-week research report. "Investors appear overly bullish on sectors like industrials and materials due to an infrastructure spending story that may prove to be more hype than reality."