Trump Sends Dow Past 21K; Fed Fuels Rate-Hike Expectations – Schaeffers Research (blog)


Posted: March 4, 2017 at 12:44 am

After matching its longest streak of record highs on Monday, the Dow took a breather on Tuesday ahead of President Donald Trump's address in front of a joint session in Congress. Despite offering specific details on his administration's policy outlooks, stocks reacted positively to Trump's speech, with the major U.S. benchmarks barreling into uncharted territory -- and Dow shares making an inaugural trek north of 21,000, tying the fastest pace the blue-chip barometer has ever jumped from one 1,000-point mark to the next, first set during the 1999 tech boom. Though markets retreated through week's end, the Dow is on track to notch a fourth straight week of gains.

Wall Street also digested a raft of Fed speeches -- mostly hawkish in nature -- stoking increased speculation for a March rate hike, and sending bank stocks booming and gold prices tumbling ahead of a historically bearish month for the malleable metal. The week's worth of central bank speeches culminated on Friday, with no fewer than four officials taking the mic, including afternoon speeches from Fed Chair Janet Yellen and Vice Chair Stanley Fischer.

As stocks surged, the CBOE Volatility Index (VIX) tumbled, and was last seen staring at a 13% month-to-date deficit. Nevertheless, elevated volatility expectations are being priced into short-term S&P 500 Index (SPX) options -- causing this VIX premium signal to flash for the first time since last October, just before the stock market began its epic post-election surge. Even more noteworthy was yesterday's extremely uncommon occurrence, in which the Dow's 100-point loss corresponded with a 5% VIX drop. This has only happened three other times to date, with the Dow typically moving higher in the aftermath of the signal, versus more near-term losses for VIX.

Among specific equities in focus, iPhone parent Apple Inc. (NASDAQ:AAPL) flirted with record highs early in the week amid a fresh round of upbeat analyst attention -- and a solid endorsement from the Oracle of Omaha -- before finally sealing the deal on Wednesday. The stock went on to notch a new all-time peak in Thursday's trading, before pulling back with the broader stock market. It was quite a different story for BlackBerry Ltd (NASDAQ:BBRY), meanwhile, which widened its year-over-year deficit, as details over the company's newest smartphone was overshadowed by a dreary update on BlackBerry's current market share.

Elsewhere in the tech sphere, Snapchat parent Snap Inc. (NYSE:SNAP) stole the spotlight in its first day of trading. SNAP's impressive rise did little to slow the roll of rival Facebook Inc (NASDAQ:FB), though, with the FANG stock holding near record highs amid a rush of bullish brokerage attention. Chipmakers were also in focus, with several high-profile names receiving praise from the brokerage bunch. Goldman Sachs, for instance, raised its price target on Micron Technology, Inc. (NASDAQ:MU), with the shares fresh off an annual high, while Craig-Hallum called Broadcom Ltd (NASDAQ:AVGO) a top pick ahead of AAPL's iPhone 8 debut.

On the earnings front, weight loss specialists stole the show, with shares of NutriSystem Inc. (NASDAQ:NTRI) and Weight Watchers International, Inc. (NYSE:WTW) soaring in the wake of their companies' respective reports. It was more of a mixed bag for retailers, though, which were surrounded by pre-earnings skeptics. While Abercrombie & Fitch Co. (NYSE:ANF) and Sothebys (NYSE:BID) stocks jumped after earnings, Target Corporation (NYSE:TGT) gapped lower post-earnings -- and these well-timed put buys translated into a tidy profit for options traders.

There's a lot to look forward to this month, which has historically been bullish for stocks -- a trend supported by these two rare S&P signals -- as well as this pair of retailers and exchange-traded funds (ETFs). In addition to European elections -- and increasing "Frexit" talk, with these two eurozone-related ETFs among those to watch -- there's also the mid-march Fed meeting. As markets continue to linger in record-high territory, Schaeffer's Senior V.P. of Research Todd Salamone says traders should not be "fighting the tape." However, risks do exist -- and optimism is on the rise -- making now an opportune time to employ options strategies such as the stock replacement strategy to reduce dollar risk, or protective puts to hedge a long stock portfolio.

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Trump Sends Dow Past 21K; Fed Fuels Rate-Hike Expectations - Schaeffers Research (blog)

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