Trump's Tax Plan, Fed Boost Stock Market Into Uncharted Territory

Stocks lost steam after Trump said an Affordable Care Act (ACA) repeal would come ahead of a highly touted tax plan

Feb 17, 2017 at 1:15 PM
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The major U.S. benchmarks continued to carve out new highs this week, inspired by promises of a massive tax plan from President Donald Trump. In fact, the Dow, S&P 500 Index (SPX), and Nasdaq Composite (COMP) simultaneously logged a fifth consecutive closing high on Wednesday for the first time in 25 years, and on Thursday, flashed this signal not seen since just before Black Monday! Nevertheless, stocks lost steam as the week wore on -- a move possibly predicted by this indicator -- after Trump prioritized an Obamacare repeal and replace over his highly touted tax plan. Though the Dow managed to extend its daily win streak to six after a strong earnings reaction for Cisco Systems, Inc. (NASDAQ:CSCO), the S&P and COMP left theirs at seven. The selling is continuing today ahead of the long holiday weekend, with little in the way of earnings and economic data to shift traders' moods.

Cisco, Arista Networks Shares Surge Post-Earnings

Nevertheless, there was plenty of action outside of the Oval Office for Wall Street to digest this week. In addition to CSCO's earnings report, sector peer Arista Networks Inc (NYSE:ANET) delivered a quarterly beat that sent the tech shares soaring into uncharted territory. Drugmaker Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) also gapped higher post-earnings, as did discount e-tailer Groupon Inc (NASDAQ:GRPN), though results from car manufacturer Tata Motors Limited (ADR) (NYSE:TTM), retailer Fossil Group Inc (NASDAQ:FOSL), and nutritional supplements specialist Nu Skin Enterprises, Inc. (NYSE:NUS) weren't so well-received.

Buffett Boosts Apple Stock to New High

Additionally, traders mulled over a recently released batch of SEC filings. Warren Buffett's Berkshire Hathaway Inc. (BRK.A) helped send Apple Inc. (NASDAQ:AAPL) to a record high, after the firm said it nearly quadrupled its exposure to the iPhone maker. The Oracle of Omaha also upped the bullish ante on airlines, as well as Sirius XM Holdings Inc. (NASDAQ:SIRI). On the flip side, BRK.A sold its shares in Deere & Company (NYSE:DE). Several hedge funds shuffled their positions on FANG stocks, too, while Nelson Peltz's Trian Fund Management unveiled a $3.5 billion stake in Procter & Gamble Co (NYSE:PG) -- sending the shares to a new annual high.

Hawkish Fed Translates Into Tailwinds for Financial Shares

Elsewhere, financial stocks continued to be in focus, with several Fed speakers taking a relatively hawkish tone toward interest rates. This included Fed Chair Janet Yellen, who, in her two-day congressional testimony, waxed optimistic about the U.S. economy and left the door open for a March rate hike. Bank shares have already been on a tear since Trump's surprise win in early November amid expectations of decreased regulation, and higher interest rates will likely translate into a boon for the sector. The hawkish Fed talk helped boost the Financial Select Sector SPDR Fund (XLF) to levels not seen since 2008, while shares of these two financial stocks hurdled key technical levels.

Technical Levels Key to Trading

According to Schaeffer's Senior V.P. of Research Todd Salamone, it's critical for traders to keep an eye on technical indicators to identify opportune entry and exit points on stocks. In fact, an uninviting technical setup was one of five reasons our Senior Trading Analyst Bryan Sapp chose not to recommend buying put options on United Parcel Service, Inc. (NYSE:UPS). Meanwhile, Schaeffer's Senior Options Strategist Tony Venosa, CMT, targeted breaches of the lower Bollinger Band when describing 11 reasons to buy these two stocks. This typically reliable buy signal also just flashed for this pair of stocks, as well, but with trading, it's always best to look at the whole picture.

Presidents Day Week Could Be a Rough One for Stock Markets

Next week, U.S. markets will be closed on Monday for Presidents Day. The holiday-shortened trading week has historically been a bearish one for the S&P, and put buyers may want to keep an eye on this particular pair of laggards. However, not all stocks underperform --  options bulls may want to check out these 25 historic outperformers. Additionally, retail stocks will be on Wall Street's radar, with a number of notable names set to report earnings.

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