A perceived victory for the EU and world establishment vaulted stocks higher with gaps across the board. The conservative candidate, conservative for the establishment at least, captured the first spot in the runoff with a 2% lead over Le Pen, though it is curious that in 56 voting districts Le Pen received zero (0) votes. Curious indeed.
Irregularities ignored, and it was a win for the status quo. While the Trump tax and healthcare reforms have been nothing more than sweet whispers, France more or less held the line for the EU. The world let out a collective 'whew,' and there was much rejoicing. Yeah.
SP500 25.46, 1.08%
NASDAQ 73.89, 1.24%
DJ30 216.13, 1.05%
SP400 1.15%
RUTX 1.31%
SOX 1.50%
Speaking of the Trump tax plan again promised last week to be unveiled this week . . . we hear it is going to be a general outline of what the President wants. There is still debate over whether it will be budget neutral (read ineffective), but late today the story is the President himself decided he wants a 15% corporate tax rate (my bare minimum cut necessary as I outlined last week) and a reduction of individual rates, deficit effect be damned. It would appear Trump rightly believes growth is the only way out of our deficit woes, that passing 'deficit neutral' tax bills only assure we remain in economic neutral gear. At least that, if true, shows some promise.
Of course that lays the groundwork for a fight with Congress because as soon as a President from the opposing side puts for a tax/budget/healthcare/etc. plan that might change the government's take, new-found budget deficit hawks appear everywhere squawking about how, THIS TIME, deficits matter. So, a big fight, government shutdown threats, and with Trump lacking the Reagan respect in Congress and at least half the people in the US (aside: both Trump and Clinton, in a popular poll rematch last week scored under 50%, Trump at 43%, Clinton 40%) he doesn't have the political capital to push it through. More promises, promises.
How will the market view that? The market still wants US tax cuts. All the election did was keep the hope of status quo in France alive. US markets still want tax cuts, healthcare reform, and regulatory rollback. 100 days are almost up and most of what we have thus far are executive orders tasking people and agencies to find better ways. Helpful, necessary, but not enough to keep the markets fat and happy.
On the day it did not matter. Futures gapped higher and on the open the stock indices did as well. NASDAQ and NASDAQ 100 gapped to new highs. DJ30 and SP500 gapped off their support. SOX is close to the prior high. They held the moves all day, gapping and sitting, spending the rest of the day defending the move higher. A big fireworks display at the open then just sitting there until the close.
RUTX was a bit more interesting, gapping higher then rallying through the March highs, clearing the interim peaks in its 8 week cup base. SP400 was similar, moving through those interim highs as well, but gapping and holding steady more like the large cap indices.
No sellers dared enter on the day. If they want to play off the Monday move, they will do so after they gauge the strength of any further upside or upside attempts on the heels of the Monday gap.
It would appear the pattern formation on SP500, DJ30, NASDAQ was sound enough to deliver upside if the right news hit. Now the market will show what kind of staying power the move possess as the week progresses and the government funding issue becomes more front and center.
We did pick up some positions that formed good patterns ahead of this move and broke higher with panache: BCOR, XXII, PXLW, HFC. It was also nice to watch other positions rally though as you likely noted, even with SOX gapping higher, while there were some good moves, many chips were not that impressive. The breaks higher were good, but leadership will have to again fan out to other parts of the market for success in holding the gap from some good index patterns.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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