Analysts say Trump stocks rally could persist

Donald Trump's shock win of the US presidency sparked a surprising rally on Wall Street this week that some believe could be a prelude to further gains.

The response, which sent the Dow Jones Industrial record to all time highs on Thursday and Friday, reflected expectations that pro-business policies and ramped-up public works spending would spur greater economic growth.

Traders also shrugged off the worries many talked about prior to the election, including questions about the Republican mogul's temperament and his protectionist trade policies.

A Wall Street rally reflected expectations Donald Trump's pro-business policies and ramped-up public works spending would spur greater economic growth ©Stan Honda (AFP/File)

Analysts said the market's optimistic response was reasonable, but that there are also risks ahead.

"There's a lot of expectations built into this rally," said Jack Ablin, chief investment officer at BMO Private Bank. But he said that for stocks to go higher, companies will have to show much stronger profit and revenue growth.

The Dow had its best week in five years, ending Friday at 18,847.66, to take its gain since January above 8 percent.

The broader S&P 500, pulled down by energy stocks, was still about 1 percent below its all-time high.

That was a far cry from the cataclysmic reaction to a Trump upset that some analysts predicted.

"I expected a Brexit-like pullback on an unlikely Trump victory because I felt that selling would be fuelled by emotion," Ablin said. "It seems that just opposite type of emotion may be behind some of the buying."

Analysts attributed the surprise rally to signals from President-elect Trump and his camp that highlighted public works spending and deemphasised protectionist measures.

Especially benefitting in the rally were banks and pharmaceutical companies, in anticipation that Trump and a Republican Congress will lighten regulatory pressures on both.

- Overnight shift -

Tuesday's results marked an overnight shift in the economic policy universe that has dominated since 2008, said Nick Colas, chief market strategist at Convergex.

"Since the financial crisis, capital markets have only had to focus on one question, What are central banks doing?" he said.

"In one day, that playbook is over. Now the playbook is what is a new US government going to do under a Donald Trump presidency."

The shift likely hearkens more volatility in the months ahead, as news and rumors dribble out about Cabinet posts and policy decisions, Colas said.

He said stocks could still rise two to four percent, although he cautioned that higher interest rates could weigh on the housing market and consumer spending.

Another risk is a return to Trump's punitive trade stance, which is generally loathed by investors. Trump has said he would raise tariffs on goods coming from China, block the Trans-Pacific Partnership trade pact and renegotiate the North American Free Trade Agreement.

On Friday one of Wall Street's most powerful voices, billionaire investor Warren Buffett, said that he had backed Democrat Hillary Clinton over Trump because he thought she had better "temperament and judgment."

But he also said that he was "100 percent" confident in the US, believing the country would ultimately move beyond the vitriolic campaign.

The market appears to be ignoring any questions about Trump's temperament, as well as any fears of rising social tensions.

The election has spurred numerous protests over Trump's controversial statements on immigrants and minorities.

In Portland, a march by some 4,000 protesters turned violent, with cars vandalized and projectiles thrown at police, who used rubber bullets and pepper spray to disperse the crowd. At least 26 people were arrested.

Analysts said the disdain felt by many for the president-elect does not register on markets.