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US equities push further into record territory

Investors pushed US equity benchmarks further into record territory on Tuesday, buoyed by expectations of a hefty economic spending plan by the incoming Republican administration.

The S&P 500 rose 0.2 per cent to 2,203 in the opening minutes of trading while the Dow Jones Industrial Average popped above 19,000 for the first time. That came a day after Wall Street set a quartet of records, with all four of the country’s main equity indices closing at fresh peaks.

The strong showing from US stocks overnight helped power European stocks higher on Tuesday, with the benchmark Euro Stoxx 600 rising as much as 0.7 per cent to 342.61 in early trading. European equities are up 2 per cent since the US election.

Markets on both sides of the Atlantic have been helped by a rebound in crude prices, but the biggest reason for the recent rally on Wall Street has been speculation that Mr Trump will introduce a package of corporate tax cuts, infrastructure spending and a regulatory rollback for banks.

“The strength in oil has been at least somewhat helpful, but I would argue it is the overall fundamental backdrop that has primarily driven this move,” said Randy Frederick, a strategist at Charles Schwab.

European oil and gas companies are up 3.2 per cent over the last five days while the S&P energy sector, which was the biggest decliner on the S&P 500 in 2014 and 2015, is poised to be the best performer this year — up 18.4 per cent so far. The rally in oil prices continued on Tuesday with Brent rising to a high of $49.96 a barrel, with sentiment boosted by expectations of an output cut deal between Opec producers when they meet in Vienna at the end of the month.

The Dow Jones Industrial Average, the oldest US equity gauge, and the Russell 2000 index of smaller companies have hit a series of new highs since the November 8 election won by Donald Trump. Both gained 0.5 per cent on Monday.

The S&P 500 — the country’s primary stock market benchmark — and the technology-focused Nasdaq Composite have taken longer to scale new peaks, but both managed the feat on Monday, rising 0.8 per cent and 0.9 per cent respectively.

Nonetheless, some analysts and investors have warned that markets are getting overly optimistic, pointing out that the details, viability and timing of the new administration’s policies are uncertain, while many other policies — such as on trade — would be negative for the US economy.

“Financial markets have been enthralled by the prospect of reactivating fiscal policy under a Republican-led White House and Congress,” William Lee, Citi’s chief North American economist, noted over the weekend. “Nevertheless, there remains a very high level of uncertainty regarding the details of the fiscal package and its timetable for implementation.”

Via FT