(Before It's News)
The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
More than seven in 10 Americans who watched President Trump’s speech on Tuesday night came away with a positive reaction, according to a CNN poll…
And 57% of viewers had a very positive reaction. While it wasn’t technically a State of the Union speech, CNN notes this is the most positive reaction to a U.S. president’s address to Congress since Barack Obama’s first one in February 2009.
It’s likely no coincidence that most media outlets also noted Trump’s speech marked a significant shift in character. As the Wall Street Journal reported…
President Donald Trump, after reaching the White House with fiery rhetorical attacks and a combative message, pitched his agenda to voters and Congress with language that was much more presidential and traditional in tone. He also issued a call for American renewal in stark contrast to the aggressively nationalist posture he outlined at his inauguration just over a month ago…
His speech largely avoided his signature attacks on his adversaries and the political establishment. While he once again highlighted the challenges of violent crime in some urban communities and drew attention to crimes committed by illegal immigrants, he didn’t repeat his denunciation of “American carnage” in his inaugural address.
Although there were no major policy shifts – he called for reworking trade deals and cracking down on illegal immigration without using the controversial “America First” label to describe them – the edges of his most incendiary rhetoric were sanded off. It was the Trump doctrine with aspirational overtones.
Despite the conciliatory tone, Trump again shared few details about how his economic plans would be carried out…
But the market apparently heard enough for the so-called “Trump Trade” to resume.
U.S. stocks surged to new all-time highs Wednesday, pushing the Dow Jones Industrial Average above 21,000 for the first time. The U.S. Dollar Index rose as much as 1% to a new seven-week high. And interest rates – as measured by the yield on the benchmark 10-year U.S. Treasury note – jumped more than 10 basis points to above 2.45%.
Recent remarks from Federal Reserve officials likely helped, too…
Four separate officials – Dallas Fed President Robert Kaplan, Philadelphia Fed President Patrick Harker, New York Fed President William Dudley, and San Francisco Fed President John Williams – spoke on Tuesday. And each was more “hawkish” than the last. As news service Reuters reported…
New York Fed President William Dudley, among the most influential U.S. central bankers, said on CNN that the case for tightening monetary policy “has become a lot more compelling” since the election of President Donald Trump and a Republican-controlled Congress.
John Williams, president of the San Francisco Fed, said that with the economy at full employment, inflation headed higher, and upside risks from potential tax cuts waiting in the wings, “I personally don’t see any need to delay” raising rates. “In my view, a rate increase is very much on the table for serious consideration at our March meeting.” Williams, unlike Dudley, is not a voter this year on policy, but his views are seen as influential among his colleagues…
The comments on Tuesday before Trump’s speech included remarks from Philadelphia Fed President Patrick Harker calling for three rate hikes this year.
Clearly, the market was listening… According to the CME Group’s FedWatch Tool, the probability of a March interest-rate increase surged this week to greater than 75%. Financial news network CNBC reports some other measures put the odds above 80%.
As Craig Erlam – senior market analyst at currency-trading firm Oanda – wrote in a note this week, it appears the stock market no longer fears rate increases but rather sees them as further evidence of a strengthening economy…
I think the Fed’s clear optimism about the economy, even when not factoring in a Trump boost, is feeding the positive sentiment in the markets… Investors don’t fear rate increases like they have in the past, instead it’s the pace of tightening that they’re focused on, and three hikes this year is clearly palatable.
One last note before we sign off today…
We’ve heard from a handful of readers who are concerned about the recent performance of gold stocks. And for good reason…
Over the last couple of weeks, gold stocks – as tracked by the VanEck Vectors Gold Miners Fund (GDX) – have fallen roughly 13%. Meanwhile, the price of gold is up slightly over the same time frame.
Some folks have asked if this is a bearish sign. After all, we often say gold stocks tend to lead gold higher in a bull market. So is this divergence a reason to sell?
In a word, no. It’s true that gold stocks tend to lead the way higher, but it’s important to remember that no market relationship holds true 100% of the time. More important, if you “zoom out” just a little, you’ll see that’s exactly what has happened this year…
Since the sector bottomed in December, gold prices are up a little more than 10%. Over the same period, gold stocks have rallied roughly 15%. Even after the recent pullback, gold stocks have outperformed gold over the past two and a half months.
We continue to believe a new leg in the ongoing bull market has begun, and much higher prices are likely this year. This recent correction may run a bit further… But we view it as buying opportunity, not a reason to sell.
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