4 post-election market indicators investors are tracking
One week after Donald Trump鈥檚 inauguration, the new president already has tackled a wide-ranging agenda, and the Dow Jones industrial average surpassed a tantalizing if largely meaningless聽20,000聽marker.
Are investors busting out the Champagne? Not quite. Yes, the market鈥檚 still in a post-election surge dubbed the 鈥淭rump rally,鈥� but there聽may be聽reasons to be cautious.
That鈥檚 particularly true among individual investors, with the percentage describing themselves as bullish falling during the last week in January to about 32% from almost 50% in late November 2016, according to a weekly sentiment survey from the American Association of Individual Investors. In the same survey, more investors expressed pessimism about the trajectory of stock prices over the next six months.
What gives? Here are four things investors are watching.
1. It鈥檚 the economy, stupid
To borrow a catchphrase from Bill Clinton鈥檚 first presidential campaign, the market鈥檚 fate depends on the strength of the U.S. economy. The current rally will end quickly if there are signs that the economy is weakening 鈥� or if investors become nervous that Trump鈥檚 actions could stall growth.
Trump has prioritized jobs, both creating them at home and preventing companies聽from outsourcing them abroad. Those measures could be good for the economy, but others 鈥� imposing taxes that will make imported goods more expensive for Americans, for example 鈥� may not be.
Federal Reserve policymakers say 鈥渆xpansions don鈥檛 die of old age,鈥� but more than seven years in, the current one is about to become the third-longest in U.S. history. That makes some investors skittish about when the next slowdown is coming.
What鈥檚 next?聽A slew of economic reports hit at the end of January and early February, including the much-watched labor report.
2. Interest rates
Future interest-rate changes are beyond Trump鈥檚 direct control. Rates are set by the Federal Reserve, an independent government agency.
At its most-recent meeting in December, the central bank聽聽鈥� for only the second time in about 10 years 鈥� and signaled three more increases this year. Investors, who try to anticipate the Fed鈥檚 moves in advance, get spooked when they鈥檙e caught off guard, which creates market volatility.
But everything circles back to the economy and whether the Fed deems the current pace of economic growth appropriate for a rate increase.
In a聽聽days before Trump鈥檚 inauguration, Federal Reserve Board Chair Janet Yellen said the timing of the next rate increase will 鈥渄epend on how the economy actually evolves over coming months鈥� and cautioned that 鈥渋ts path can take surprising twists and turns.鈥�
What鈥檚 next?聽The Fed meets Jan. 31 and Feb. 1 for the first of eight meetings聽this year.
3. The wall, pipelines and regulations
Some of Trump鈥檚 early agenda items have been聽fraught with controversy. That鈥檚 giving investors a lot to unpack in terms of which industries 鈥� and聽individual stocks聽鈥� will be the winners and losers.
So far, the new president has offered some details about funding to build a wall on the border with Mexico, pledged to revive two pipeline projects, and frozen most new regulations.
If Trump has his way, the Affordable Care Act will be rolled back, the U.S. will withdraw from the Trans-Pacific Partnership trade agreement, and undocumented immigrants will be deported.
While many investors are in a 鈥渨ait-and-see鈥� mode, they鈥檙e keyed in on possible corporate tax and regulation cuts, which could foster a favorable market backdrop, says Walter 鈥淏ucky鈥� Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
鈥淟ook at the climate for equities the past 10 years 鈥� it鈥檚 been marked by low economic growth, increasing regulation and taxes that were raised 鈥� and look how well they鈥檝e done,鈥欌�� he says.
What鈥檚 next?聽It鈥檚 hard to say, as Trump tackled broad-ranging issues in just his first week.
4. A market of stocks
Trump called the Dow at 20,000 鈥済reat鈥� in a tweet, but he doesn鈥檛 get all of the credit for the recent rally. There鈥檚 also a not-so-minor event happening concurrently: It鈥檚 earnings season.
The weekslong period when companies report their results can spur outsized moves up or down for individual stocks, which in turn moves the broader indexes. Fourth-quarter earnings have been mixed, though generally better-than-expected for a majority of the Standard & Poor鈥檚 500 index. That鈥檚 helping to bolster investor optimism.
While the economy matters a lot here (again), Trump鈥檚 proposals could impact earnings in future quarters聽鈥� and investors try to predict the future.
If tax cuts and regulatory changes聽are on the horizon, such changes probably will bolster corporate profitability and push stock prices higher, says Brian Jacobsen, chief portfolio strategist with Wells Fargo Funds Management LLC in Menomonee Falls, Wisconsin.
鈥淓verything鈥檚 likely going to change going forward, so fourth-quarter earnings probably don鈥檛 tell you as much about what they鈥檙e going to do in 2017, 2018 and beyond,鈥欌�� Jacobsen says.
What鈥檚 next?聽More earnings in the last days of January and into the beginning of February.
Anna-Louise Jackson is a staff writer at NerdWallet, a personal finance website. Email:聽ajackson@nerdwallet.com.
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