Home United States USA — Financial Here's why stocks reacted so strongly to the Trump presser

Here's why stocks reacted so strongly to the Trump presser


NewsHubThe markets, for a short while, had a hiccup around President-elect Donald Trump’s press conference. The big question: why?
Drug stocks dropped as Trump said drug companies will “not get away with murder. ”
Lockheed Martin dropped when he said he would bring the cost of the F-35 fighter jet “way down. ” Defense names in general dropped.
But why? Trump has already made these statements. There was little else directly market moving, yet stocks moved. The dollar dropped and bond prices rallied.
The answer lies in where we are in the markets right now: priced for perfection. The market is a little like a coiled spring, ready to break out one way or the other. Stocks are near historic highs. Consumer confidence is high. Investing sentiment is very bullish and volatility is low.
That’s all good news, but it’s a volatile mix. That’s because stocks have moved on expectations that earnings in 2017 are going to be much higher than 2016, partly on a better economy in general but it’s been turbocharged by Trump’s promises of lower taxes, less regulation and fiscal stimulus.
That’s where the risk lies, in the very real possibility that there is going to be some kind of disappointment. And the market is not in the mood for any disappointment.
We saw this in the third quarter when slight misses in earnings expectations caused a notable drop in stocks.
With markets nearly 10 percent higher since then, the nervousness is even greater. Evercore ISI said it perfectly this morning: the “bar on earnings has risen as expectations for growth have increased. ”
What we need, as my colleague Jim Cramer mentioned this morning, is a bridge. We need a bridge between the current market mentality that has high expectations for a 2017 earnings boost and the likely guidance we are going to get: an attempt to lower expectations.
Here’s what needs to happen: the bridge is a belief by market participants for the next few months that better numbers will be coming down the road and that expectations for much higher revenue and earnings growth are not wildly inflated.
If that mentality takes hold, the markets can look forward to a relatively peaceful few months, with lots of mostly sideways action.
If the market stops believing that mantra, it’s going to be a rocky winter.

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