For all the bullishness, stock strategists are looking over their shoulder at the bond market. If Trump’s policies help fuel more U.S. growth, the worry is that would also fuel inflation and higher rates.
“I’m still bullish. I think we’re going higher here. I’m watching rates. I think they’re going to have to move a fair amount more. What I’m watching is the correlation between stocks and bonds, and it’s still positive,” said Jim Paulsen, chief investment strategist at Wells Capital Management.
As stocks surged Wednesday, bond yields also rose. The 10-year yield was at 2.52 percent, up from a low of 2.44 percent earlier in the day. Some strategists have said a 10-year at 3 percent would start to make stocks nervous.
All major market indexes closed at new highs. The Dow jumped 155 to 20,068, its 18th record close since election day. The S&P 500 was also much higher, up 18 points or 0.8 percent at 2,298. The Nasdaq jumped nearly 1 percent to 5,656. Redler said the fact the S&P held 2,280 puts it on track for 2,325 in the first quarter.
“People should be deepening their analysis of what’s to come rather than just chase price,” said Peter Boockvar, chief market analyst with Lindsey Group.
“The market is still in its honeymoon phase. I don’t know. I still think the market is going to end the year more determined by interest rates rather than Trump fiscal policy. I think if the stock market is right in their optimism on U.S. growth, there’s no way interest rates aren’t going up,” he said. Boockvar pointed to comments from the European Central Bank and the Bank of England about winding down bond purchase programs which have been keeping European rates low.
Separately, markets will be watching President Trump’s first official meeting with a world leader later this week, when he meets Prime Minister Theresa May. The two are expected to talk trade and the future of U.S.- U.K. relations post-Brexit. May is attending a Republican congressional retreat Thursday.
There is also a deluge of earnings news, including automakers Ford and Fiat Chrysler in the morning, and Alphabet and Intel after the close.
“People were saying, ‘Buy the election, sell the inaugural.’ That was the buzz word and now it’s doing just the opposite. I think there’s still a ways to go,” said Paulsen. “I think it has legs beyond Trump. There was a pronounced acceleration in the economy.”
Thursday’s data includes jobless claims at 8:30 a.m. ET. Markit services PMI data is at 9:45 a.m. Leading indicators and new home sales are released at 10 a.m.
Earnings are expected from Caterpillar, Blackstone, Baker Hughes, PulteGroup, Comcast, Diageo, Dow Chemical, Fiat Chrysler, Ford, Biogen, Northrop Grumman, Royal Caribbean, Southwest Air, Raytheon, LVMH and Bristol-Myers Squibb ahead of the bell.
Alphabet, Intel, Microsoft, Starbucks, Paypal, VMWare, Flex, Valvoline, Juniper Networks, CR Bard and KLA Tencor report after the close.
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