The best US earnings season in five years has powered Wall Street to new heights even as the pro-business tax, regulation and infrastructure policies of Donald Trump are taking longer to translate into action than investors had hoped.
The S&P 500 hit a record 2,403.87 early on Tuesday before dipping around lunchtime while both the Nasdaq Composite and Nasdaq 100 indices also hit fresh highs.
“This isn’t a Trump rally,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute. “Most of this rally is based on underlying fundamentals.”
A combination of reported earnings and analysts’ estimates calculated by FactSet puts earnings per share gains for the first quarter of 2017 at 13.3 per cent, their first double-digit growth since the fourth quarter of 2011.
The earnings growth has been driven by the financial, technology and energy sectors, with the latter benefiting from a rebound in oil prices from 2016’s doldrums.
Emmanuel Macron’s victory in France’s presidential election has calmed markets, assuaging concerns about further turmoil in Europe and pushing the CBOE’s Vix volatility index — known as Wall Street’s “fear gauge” — to its lowest level in more than 20 years.
Technology companies have led the US stock market’s gains in 2017, in a reversal of the post-election period last year when investors sold tech to buy cyclical companies and financials, which are seen as the biggest beneficiaries of Mr Trump’s plans for tax cuts, infrastructure spending and deregulation.
In 2017, investors have returned to areas that offer strong growth regardless of the underlying US economy — a sign of doubt in the administration’s ability to enact its plans.
Shares of Apple, Amazon, Facebook and Google are all up 20-30 per cent this year. Apple has been boosted by rising investor confidence that an update to its iPhone due later this year will provide a shot in the arm to sales.
“The market is beginning to realise that there are a lot of promises that were made that are unlikely to be fulfilled,” said Alan Gayle, director of asset allocation at RidgeWorth Investments. “If they are fulfilled that will be icing on the cake.”