1. Moving the Markets

Treading water below the unchanged line was the theme of the day as weakening upward momentum held the major indexes in check. Despite the usual afternoon ramp, only the Dow managed to eke out a gain to notch its sixth straight record high close.

It was a mixed bag with declining energy stocks dragging on the indexes while, at the same time, a pause was in order to digest the gains of the Trump rally. With the 4^th quarter earnings season almost being in the rear view mirror, today’s focus was again on Trump’s lofty promises of cutting corporate taxes and reducing regulations.

There was a lot of hope, enthusiasm and excitement powering this rally, but we’re now getting closer to a point where Wall Street wants to see more concrete results, in other words, the theme has shifted to either “put up” or “shut up.”

On the earnings side, the big assist that helped the Dow close in the green, came from Cisco Systems (+2.38%) after its quarterly results were posted late Wednesday. We now have to wait and see what the next driver will be to keep the recent upward momentum intact.

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1. Moving the Markets

The bulls continued to have their way on Wall Street with today’s support coming from positive data confirming that the US economy is heating up and leaving the Fed behind in terms of controlling inflation via higher rates. The CPI number can only be described as “blistering” at a strong 2.3% print vs expectations of a 2.1% reading, which is well above the Fed’s target of 2.0%.

This was followed by strong retail sales, after a bleak Holiday season, as consumers appeared to be optimistic over Trump’s plans. Retails sales jumped 0.4% in the month of January, much better than the 0.1% expected. The only fly in the ointment is the recent weakness in wages (-0.6% YoY) which, in light of rising inflation, casts a shadow on how long this spending spree can last.

So what is really behind the current “melt-up” rally? Fed chief Yellen provided the answer today during her testimony in front of the House Financial Services committee: “I think market participants likely are anticipating shifts in fiscal policy that will stimulate growth and perhaps raise earnings.” Yes, and that is commonly referred to as the Trump rally. My only question is: How long can this last without a serious correction?

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1. Moving the Markets

Last week’s upward momentum showed no signs of letting up as the rally continued today with the major indexes adding over +0.5%. The conviction is that Trump’s promised tax cut will be a boon to the economy. While that may be true, the open question as to not only its feasibility, but also its timely implementation, remains the big unknown. As usual, hope and reality are very much disconnected on Wall Street.

Nevertheless, the bulls are in charge and Trump has been working more like a business executive rather than a politician by reaching out to influential world leaders by phone, while concurrently holding high profile meetings with executives ranging from automakers to technology companies.

While economic data points appear disconnected from the stock market, the S&P 500 companies are on track for their best profit growth in 9 quarters. On deck is Fed chief Yellen’s annual testimony on Capital Hill tomorrow and Wednesday, which hopefully clarifies interest rate policy as it is uncertain whether more hikes during 2017 will actually materialize.

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