Behold the Trump Bump! Is this the next bubble?

Behold the Trump Bump! Is this the next bubble?

The Dow Jones Industrial just hit the 20k level, continuing the post-election trend. What some are calling the Trump Effect or Trump Bump.

The new record comes as stocks have been on the rise for much of the past three months, finding fresh legs since Election Day to add to one of the longest bull-market runs in U.S. history. The Dow industrials closed under 18000 as recently as Nov. 4, but have risen 12% since then. (*)

Before you pop your champagne and start the party, Let’s examine what is happening:

According to the following video by FOX here are the sectors that are experiencing the most gains:

  • Financial (GoldmanSachs $GOS = + 30.9%)
  • Steel (USS $USX1= +66.9%)
  • Infrastructure (Fluor $FLU: +27.1%)
  • Department Stores (JC Penney $JCP: +21.6%)
  • Discount Retailers (Target $DYH : +15.9%)
  • Energy (Chevron $CHV: 9.4%) (ExxonMobil $XONA: 8.5%)

And losses:

  • Hospitals (UHS $UHS: -14.9%)
  • Health Insurers (Telnet Health $THC: -25.9%)
  • Pharma: (Lilly $LLY: -7.3%)

Dow pushes toward 20,000: What’s fueling the Trump bump?

Insight from market watcher Dave Maney

As you can see, the Trends are highly related to President Trump’s promises and Cabinet picks. Let me explain this: At First Experts (Brokers) spotted these relatively low-risk bets:

The new ministers or secretaries will help their former Firms.

Let us not forget that President Trump assigned many cabinets to former Goldman Sachs and Exxon Mobile top executives. This decision undoubtedly has contributed to raising the stocks of both companies.

Trump to appoint former Goldman banker as Treasury secretary

Donald Trump, the US president-elect, is to appoint a former Goldman Sachs banker as his treasury secretary, it emerged tonight. Wall Street veteran Steven Mnuchin, who spent 17 years at the US investment bank, has reportedly been selected for the key post in the Republican’s administration and his appointment could be confirmed as early as Wednesday.

#Trump will actually build the wall.

The Steel and Infrastructure Companies Stocks are shooting through the top. Trump made a big and bold Promise that he will build a wall along the Mexican border -and hell yeah- you will need Steel, Building materials and some heavy machinery for that to happen.

But last July, research group Bernstein estimated a different figure, and it’s a lot more than the President predicted. Minus labor and land acquisition costs, analysts there found that the materials needed to build a 40-foot-tall, 7-foot-deep, 10-inch-thick, and 1,000-mile-long wall between the U.S. and Mexico would cost $15 billion. (**)

The Republicans will stop Obama care.

Finally, The biggest losers, are Health companies, This is related to Republicans working on repealing Obama care without any alternative.

After the first wave of brokers has placed their “bets,” The public got involved and the stock prices increasing trend got stronger. (This is my assumption: as it always the case). Usually, the Stock price will regulate itself after a while, but with all the hype about the #trumpeffect,  This can turn into a dangerous bubble.

In Theory, all is o.k. Untill people wake up one day and realize that any real value does not back their investments, but rather speculations about the new president. As crazy as the idea might be, at a certain point -if this trend continues, building the Wall will be the lesser evil. (To prevent the bubble from bursting).

Here are 2 key tenets of Dow Theory:

  • The market moves in waves, This is why all financial Firms Stocks are moving up together… and other industies as well.

  • A trend is assumed to exist until evidence suggests it has reversed. (***)

Finally, we should not forget that Trump did little to save the American economy, after all, he is in office for merely a week.

Hint: President #Obama

Keith Boykin on Twitter

The Dow Jones Industrial Average was 7949 when President Obama took office and 19,827 when he left, a gain of 149%. #dow20k

Sources: *, ** , ***