Rejoice, brothers and sisters… the reflation trade is back!
I channeled my best preacher voice for that line, and when you think about it, I am a preacher of sorts… a preacher for your money’s salvation.
This week, we heard the good news on the market front as stocks surged more than 1% Monday and again on Tuesday. Markets are up only modestly today, but that’s to be expected after two consecutive sessions of big buying.
There are several good reasons for the rise in stocks this week. First, there was the French presidential election, and the reaction to the results of the first round of voting was a collective “Vive la France!”
The field now has been narrowed to centrist candidate Emmanuel Macron and Marine Le Pen, leader of the National Front party. Financial markets want Macron, as he doesn’t want to upset the European Union apple cart. And, according to the early polls, Macron holds a two-to-one lead over Le Pen.
Now, given the polls showed Brexit would be voted down and that Hillary Clinton would be president of the United States, well, forgive me if I don’t have all that much confidence in polls. Still, Wall Street expects a Macron victory and is betting on it.
The other two big reasons stocks are up this week are that earnings have been very good, and the Trump reflation trade is back in business.
We got strong earnings results from many industrial bellwethers this week, including Dow components Caterpillar (CAT), McDonald’s (MCD) and 3M (MMM). We also got great results from many “trader favorite” stocks such as Chipotle Mexican Grill (CMG). For more on CMG, read my quote in U.S. News & World Report.
On Tuesday, markets got a taste of what came today, and that is more details on the president’s tax reform plan.