Stocks start year strong despite Trump missteps

Despite concerns about President Trump's ability to push through his market-friendly economic agenda, investors stuck with stocks at the start of the year, propelling the market to its biggest quarterly gain since the last three months of 2015.

The Standard & Poor's 500 stock index, a benchmark gauge of large U.S. stocks, gained 5.5% in the first three months of 2017, its best quarter since the final quarter of 2015 and the best start to a year since a 10% gain in 2013.

Stocks continued their post-election rally despite Trump's setbacks, including the inability of the Republican-controlled Congress in March to pass a new law to replace Obamacare. That political loss sparked worries that the president's plans to cut corporate taxes, reduce business regulation and get an infrastructure spending plan underway would get delayed or watered down.

Those concerns weighed on segments of the stock market that would benefit more from Trump's plans, such as banks and other financial stocks, which declined in March and gained 2.1% in the quarter. Gains in Bank of America shares, which had climbed 17% for the year in early March, shrank to less than 7% by quarter's end.

Market's outlook on Trump

Still, many investors say it's premature to say that Trump's pro-business moves won't materialize. They still think a tax cut for companies is coming, and that the benefits will trickle down to companies' bottom lines.

"The carrot remains tax reform," says Bruce Bittles, chief investment strategist at Baird. "As long as the carrot is out there stocks are not vulnerable."

Wall Street bulls also have been emboldened by signs of a global economic pickup and rising confidence readings for both consumers and businesses, says Joe Quinlan, chief market strategist at U.S. Trust. Market optimists still expect the White House to "produce a signature piece of legislation,"  he adds.

Still, Quinlan wouldn't rule out fresh political obstacles causing problems for stocks.

"Political disappointment and dismay could emerge as headwinds in the second quarter," he says.

Tech the quarter's big winner 

Technology stocks are the big winner early in 2017. The industry sector, led by iPhone maker Apple, which jumped 24%, rose 12.2% -- or double the performance of the S&P 500. Tech stocks found buyers as the economy downshifted from a 2.1% growth rate in the final three months of 2016 to an estimated 1.4% pace in 2017's first quarter. Tech companies are seen as having the ability to grow their businesses at a rapid clip with or without help from Trump's hoped-for economic stimulus measures.

Wall Street will quickly pivot to the next wave of potentially market-moving news when the second quarter kicks off Monday.

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The March employment report set for release on April 7 will provide a fresh reading on the strength of the job market, following a better-than-expected 235,000 jobs created in February.

The first batch of key quarterly earnings reports will occur in mid-April when major banks like Citigroup, JPMorgan Chase and Wells Fargo report first-quarter results. Overall, earnings of companies in the S&P 500 are expected to have grown 10.2% in the January-thru-March period, up from 8% in the final quarter of 2016, earnings tracker Thomson Reuters says.

Investors also will be watching the Federal Reserve in the coming weeks in search of clues as to when the nation's central bank will increase interest rates next. In March, the U.S. central bank boosted short-term rates a quarter-point to a range of 0.75% to 1%. Futures markets are now pricing in just 6% odds of another quarter-point hike at the Fed's May meeting, but the probability jumps closer to 60% at the June meeting, according to CME Group.

"The success of stocks in the second quarter will come down to how earnings come in and whether there's progress on Trump's tax plans," says JJ Kinahan, chief strategist at TD Ameritrade.