It may not be chocolate and peanut butter, but a dose of healthy earnings and pro-business comments from President Donald Trump was enough to send the major indexes to all-time highs last week.

It sure didn’t look that way at first, as the market barely moved on Monday, Tuesday, and Wednesday. But Thursday, while meeting with airline executives, Trump promised a “phenomenal” tax plan—and stocks were off to the races. By Friday, the Dow Jones Industrial Average had gained 197.91 points, or 1%, to 20,269.37, the Standard & Poor’s 500 index had risen 0.8%, to 2316.10, and the Nasdaq Composite had climbed 1.2%, to 5734.13.

It’s no secret that the market has reveled in Trump’s pro-business comments, even though he has offered few details, particularly on his tax plan. Don’t expect the market reaction to change, says Mike O’Rourke, chief market strategist at Jones Trading. “It’s a void,” he explains. “Until we have substance and a framework, we will see this kind of reaction to noise.”

But stocks are also reacting to something more fundamental: corporate earnings. Yes, there have been some high-profile disappointments. Gilead Sciences (ticker: GILD) tumbled 8.3% to $66.36 after offering downbeat 2017 sales guidance, while General Motors (GM) dropped 3.2% to $35.17 as investors appear reluctant to believe its forecasts of continued strong profits in 2017. The stronger earnings growth is particularly important because the S&P 500 rose 9.5% last year, despite little-to-no earnings improvement, says Daniel Chung, CEO of asset manager Alger. That meant stocks were rising simply because valuations were climbing.

But if it’s earnings you’re interested in, it might be time to look to Europe. On the surface, that sounds risky, perhaps even ridiculous. Greece was back in the headlines last week after the IMF said the struggling European nation needed more debt relief. That sent Greek bond yields soaring, as investors worried about the possibility of a renewed crisis. Then there’s the potential for chaos from elections in the Netherlands, France, and Germany, which could take a populist turn, akin to that taken by voters in Britain and the U.S.

Yet Merrill Lynch strategist Ronan Carr notes that earnings growth in Europe could be faster than in the U.S. this year and next, after lagging behind by 76 percentage points since 2009. At the same time, the value of the MSCI USA index, relative to the MSCI Europe index, hit its highest level in 40 years. “A strong earnings recovery could be the catalyst to unlock the value potential in Europe,” Carr writes.

To which we can only say: finally.

(Source: Barrons Online)