2 Outa 3 Ain’t Bad: Dow Gains 393 Points This Week as Elections, Earnings Trump Policy

Stocks soared this week as the passing of the French presidential election and strong earnings trumped the lack of details in President Donald J. Trump’s tax plan.

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The S&P 500 gained 1.5% this week after declining 0.2% to2,384.20 today, while the Dow Jones Industrial Average climbed 1.9% this week after dipping 40.82 points, or 0.2%, to 20,940.51. The Nasdaq Composite jumped 2.3% this week after finishing little changed at 6,047.61 today.

It wasn’t just the U.S. that had a wicked rally this week. The folks at Bespoke Investment Group explain:

Equity markets around the world surged this week (with the exception of Canada and China) as they priced in a higher likelihood of Euro-area stability due to the results of the first round of the French Presidential election last weekend. While poll numbers heading into the vote ended up doing a great job of predicting the eventual outcome (Macron #1, Le Pen #2 and headed for a run-off), pre-vote, markets had to price in odds that a different outcome might emerge. When the more negatively interpreted outcomes didnt materialize, investors stepped in and bid up stocks with a vengeance. European ETFs surged the most on the week, with the iShares MSCI France ETF (EWQ),iShares MSCI Germany ETF (EWG),iShares MSCI Italy Capped ETF (EWI), andiShares MSCI Spain Capped ETF (EWP) all rallying 4.85% or more. US stocks also gained but only by a third of what we saw in Europe.

And while France provided a big boost, earnings are also doing their part to lift markets globally. Deutsche Bank’s Binky Chadha explains:

With Q1 earnings largely playing out in line with our view, US and global growth strong and the dollar drag contained, we maintain our 2017 S&P 500 EPS forecast of $133 (+13%). In our view, the most synchronized global rebound in 6 years has plenty of legs. In particular, in the US we see capex and the labor market, which typically lag broader measures of growth, having significant upside. With the dollar already pricing in the next 100-150bps move in rate differentials in favor of the US as the Fed hikes, we see its 2-year range extending and the drag on earnings growth remaining contained (-1.5pp). We see Financials’ earnings moving in line with consensus expectations, but with rates in our view poised to move higher, we see the risks as being to the upside. The main risk to the downside comes from a potential decline in oil prices which we see as too high (fair value $40).

Stay tuned.

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