 "Dynamic Capital")
Both the Dow Jones Industrial Average and the S&P 500 reached new all-time highs on Monday amid comments from the President that he would be making a “big” announcement on infrastructure by Tuesday. After meeting with state governors early Monday he announced quickly that he and his team would not waste any time on his infrastructure plans, regulatory reforms and his tax plan that is expected to be released promptly after his Obamacare replacement proposal. Trump is scheduled to officially address Congress for the first time on Tuesday evening, where many investors and analysts anticipate he will detail more specifically his exact plans on boosting economic growth.
Prominent analysts are hoping that he will announce a road-map to the resolution of the Obamacare situation and tax reform in place by August – if that is laid out in the speech to Congress by the President, most expect the ‘Trump rally’ in financial markets to continue. Trump assured the markets a few weeks ago that his tax plan would be “phenomenal”, and with a Republican House and Senate many expect his proposal to pass since cutting taxes has been a Republican priority for some time. However, the exact details have yet to be released, and with him also proposing infrastructure spending and significantly increasing the military budget, it remains to be seen how his plans will affect the deficit.
Friday marked eleven consecutive days of record closes for the Dow, though the actual average hasn’t moved more than 1% in either direction since December 7th, meaning the growth is more slow and steady than booming. Six of eleven of the major S&P 500 industry indexes were higher with gains in energy and financials leading the way, helping balance out losses in consumer staples. Tesla stocks took a significant hit earlier, after news broke that Goldman Sachs (an extremely influential investment bank) downgraded its rating of the stock from neutral to sell while lowering the price target.
It’s extremely rare for major investments banks to be so publicly negative about a company with a profile as high as Tesla’s, however the latest financial results from the company reported last week were very troubling – the stock is now down a total of 10% since they were released. Tesla’s acquisition of Solar City (an alternative energy company owned by two of Elon Musk’s cousins), also worried investors as many thought it was overpriced and Solar City is currently going through a business model transition of its own – with most analysts believing Tesla should be focused on being an automobile manufacturer and making its own business profitable before expanding into other ventures, as it has yet to prove profitable.
In other economic news, US pending home sales have fallen to their lowest levels in nearly a year, with many citing the shortage of inventory in the Midwest and Western regions as the main culprit. In the grander scheme of things, home sales in January were still 0.4% higher than January of last year, and buyers are still outnumbering sellers in key metro areas. Additionally, oil prices continue to edge up as investors are making record bets on bullish future trends through buying futures and options. However, with speculators increasing their bullish bets on US crude to an all-time high, the risk of disappointment and a downward spiral in prices has also significantly risen.