After a three-week run where all major U.S. indexes posted significant gains, we saw more mixed results last week. The Dow was up 0.10%, but the S&P 500 lost 0.97% and the NASDAQ was down 2.65%. The MSCI EAFE’s measure of international developed markets also dropped 0.24%.[i]
Rallies such as the one we’ve experienced since Donald Trump’s election can’t go on forever, so I’m not too concerned about these minor pullbacks. In fact, as I’ve recently said, when you look more deeply at the data, I see many reasons to believe that our economy is moving in the right direction.
Good News This Week
For the second straight week, the major domestic indexes all ended in positive territory: The S&P 500 was up 0.81%, the Dow increased 0.11%, and the NASDAQ added 1.61%.[i] While American indexes performed well, MSCI EAFE’s international equities declined 1.58%.[ii]
With the long, drawn-out presidential election behind us, investors are beginning to look past politics and pay closer attention to the economic fundamentals.[iii] As I’ve shared in recent market updates, the economy shows many signs of strength and growth. In the past few weeks alone:
- GDP beat expectations.[iv]
- Hourly earnings increased.[v]
- The Dow reached an all-time high.[vi]
- New unemployment claims hit a 43-year low.[vii]
- Housing starts increased 25.5%.[viii]
Last Tuesday, many Americans watched in great surprise as Donald Trump won our presidential election. Just that day, the New York Times had placed Hillary Clinton’s odds of winning at 85%,[i] based on a range of state and national polls. But, like the Brexit vote this past June, 2016 seems to be the year of unexpected outcomes.
As predicted, the markets initially reacted to uncertainty as they often do: with losses. Futures for the Dow, NASDAQ, and S&P 500 all dropped at least 4% in the middle of the night after Trump’s win.[ii] But come Wednesday morning, everyone was in for another surprise.
Despite many predictions that the markets would sell-off if Trump won, all of the major U.S. indexes ended the week ahead. The S&P 500 was up 3.80%, the Dow gained 5.36%, NASDAQ increased 3.78%, and MSCI EAFE added 0.05%.[iii] The Dow even closed at an all-time high on Thursday and posted its best week since 2011, despite being slightly down on Friday.[iv]
Needless to say, these two developments last week gave significant surprises for most people. Let’s look a bit deeper at the market’s reaction and what may lie ahead.
Understanding the Rally