Weighing the Week Ahead: Which Stocks Benefit Most from Trump Policy Changes?

The economic calendar is normal, but there will be a lot of competing news – Korean talks, China negotiations, and the Trump legal team’s announcement about whether the President will meet with Special Counsel Mueller. And those are just the items we know about!

Sometimes there are great themes that do not get the deserved attention in financial media. Readers have encouraged me to identify and discuss such themes, and this week provides a good opportunity. Pundits should be asking:

Which equity sectors benefit most from Trump policy changes?

Last Week Recap

In my last edition of WTWA I asked why stocks were “stuck in neutral” given the recent economic strength and the strong corporate earnings. I also noted the significance of the week’s inflation data, even though the Fed’s favorite gauge was not on the calendar. That was all quite accurate. It was the key topic at the start of the week, and stocks responded well to the tame inflation data released mid-week.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, so check it out.

The market had a nice rally, up 2.4% for the week. The trading range was about 3.4%, consistent with recent volatility. I summarize actual and implied volatility each week in our Indicator Snapshot section below. As you can see, volatility has been moving lower, and is back into the long-term range.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

Feel free to add items that I have missed. Please keep in mind that we are looking for current news, especially from the last week or so. WTWA is not about long-term concerns like debt. These are important, of course, but not our weekly subject unless there has been some major change.

The overall picture remains positive. Economic strength is reasonable, and inflation is low. New Deal Democrat’s analysis of high-frequency indicators shows some deterioration but retains the overall outlook.

The Good

  • NFIB small business optimism nudged higher to 104.8 vs. 104.7 last month and expected. The record of improved profits was the highest in the 45-year history of the survey. (NFIB)
  • Hotel occupancy is on pace for a record year. (Calculated Risk).
  • Bank lending is getting easier. New Deal Democrat notes that an ongoing criticism of the economy has been the deceleration of commercial and industrial loans. The Senior Loan Officer Survey tends to lead lending by about six months. He concludes, “Credit remains loose, and indicates continuing economic growth over the next 12 months”.
  • JOLTS showed labor market strength. Nick Bunker provides the best analysis of this report, covering and interpreting all the key elements. This month there is a small rebound in the quits rate, the all-time low of the ratio between unemployed workers and open jobs, and the overall structure represented in the Beveridge curve.

  • Inflation remained tame. The PPI increased 0.1% with the core up 0.2%. The CPI increased 0.2% with the core up 0.1%. These reports comforted observers who are concerned about Fed rate hikes. Jill Mislinski provides an “X-Ray View” of inflation component using year-over-year changes instead of seasonal adjustments. James Picerno observers that the data are unlikely to influence Fed policy.

  • Initial jobless claims matched last week’s low of 211K and beat expectations of 220K.