President-Elect Donald Trump spoke on Wednesday morning at his first formal press conference since the November elections, and the markets were all ears. Trump covered a lot of ground with multiple topics that included:
• Attacks on the media for reporting on his alleged ties to Russia, which he vehemently denies.
• How he plans on addressing conflict-of-interest issues between his business matters and his role as President.
• His assessment that much good news has come from US automakers in the past few weeks with respect to keeping and creating jobs in the US.
• Criticism of Lockheed-Martin for the cost of its F-35 program.
• The claim that he will be the “greatest jobs producer that God ever created.”
• An attack on pharmaceutical companies for their pricing practices, saying that these companies are “getting away with murder.”
During the course of Trump’s press conference, it was his fervent comments condemning pharmaceutical pricing that moved markets most noticeably early on during the event. Stocks of drug-makers and biotech companies plunged, which helped to bring down the broad stock indexes. Additionally, the dollar fell and gold was lifted throughout Trump’s speech and during the subsequent question/answer period.
In the end, however, as markets digested the contents of the press conference, the dollar pared some of its losses while gold pared some of its gains. The most notable market reaction in the conference aftermath, though, was the behavior of the US stock markets. In the run-up to Wednesday’s market close, equities gained back all their losses, and then some. The Dow ended the day just off Wednesday’s highs and within 50 points of the highly anticipated 20,000 milestone. Meanwhile, the S&P 500 ended back up at 2275, which was the very high of the day and just slightly off its recent all-time high. Finally, Nasdaq closed Wednesday at a new record closing high. Apparently, the Trump Rally may still have some staying power, at least for the time being, as markets remain undeterred by any concerns over the incoming President’s remarks or potential controversies.
As noted in earlier analysis, however, risks and challenges to the strong equity bull market continue to remain on the horizon. Earnings season has arrived, and the currently lofty earnings expectations have set a high bar that will be significantly easier to disappoint than usual. Also, back to the Trump theme, the President-elect failed on Wednesday to reiterate what equity investors were seeking to hear – promises of lower corporate taxes, financial deregulation, and stepped-up fiscal spending. Inauguration Day is only slightly more than a week from now on January 20th. If Trump’s pre-inauguration words and promises have only served to lift the stock market ever higher, his actual actions and follow-through as President could set-up the market’s very high expectations for potentially significant disappointment. Although the inauguration itself is not expected to be a major market-mover, events and conditions immediately after Trump’s taking office could set in motion substantially increased volatility in the equity and currency markets.