Like an English major wading through James Joyce’s Ulysses, the market last week was trying to make sense of overlapping narratives. That didn’t stop it from extending its weekly winning streak.

The Dow Jones Industrial Average breached the 21,000 mark for the first time, gaining 183.95, or 0.9%, to close the week at 21,005.71—its fourth straight weekly gain. The Standard & Poor’s 500 index rose to 2383.12, and the Nasdaq Composite advanced 0.4%, to 5870.75; both have been up for six straight weeks.

Much of the action was compressed into one day. After barely moving last Monday and Tuesday, the Dow surged more than 300 points on Wednesday, its largest one-day point gain since Nov. 7, just before the election that swept Donald Trump into office. That the big gain followed Trump’s speech to Congress Tuesday night wasn’t lost on many observers, who noted its conciliatory tone. “Trump became presidential,” Strategas Research Partners Dan Clifton wrote in a note to clients last week. The market appeared to agree, even if some of the enthusiasm was tamped down by the need for Attorney General Jeff Sessions to recuse himself over his unacknowledged contact with Russia’s ambassador during the presidential campaign.

But it was more than just a speech that got the market’s juices flowing. Barclays strategist Keith Parker points to the slew of economic data that was released in the hours following the address. A survey of Chinese manufacturing activity rose for the eighth month, while a similar measure in the U.S. hits its highest reading in nearly three years. “You have synchronized developed-market and emerging-market growth,” Parker says. “That’s a big driver of the rally.”

Is sentiment getting too frothy? The big gains have prompted strategists to lift their S&P 500 projections, with Bank of America Merrill Lynch taking its target to 2450, from 2350, and Stifel taking its to 2500, from 2400. And then there’s Snap (ticker: SNAP). Its initial public offering went off without a hitch after all, as the stock soared 44% on its first day of trading, from the offering price of $17 to a closing price of $24.48. The move meant that Snap left $1.5 billion on the table, the fourth largest amount ever, according to data from University of Florida finance professor Jay Ritter.

Yet Snap, at this point, remains something of a one-off, as others remain reluctant to go public. And Merrill Lynch’s Sell Side Indicator, a measure of Wall Street’s bullishness, still sits in neutral territory despite hitting its highest level in 16 months, a level that in the past has preceded an average gain of 17% over the following 12 months.

Yes, the market narrative has many strands. But for now, they’re pointing to a happy ending.

(Source: Barrons Online)

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)