In spite of minor hiccups, the stock market rally continued into a third-straight week, with the Dow scaling a new high. The blue-chip index steered past the 19,000 mark for the first time in its 120-year history, driven by expectations of market-friendly policies from President-elect Donald Trump.
There’s been a particularly sharp run-up in the stock price of blue-chip banks, healthcare, chemical, restaurants and industrial companies. Such companies are slated to gain further in the near term as they are well established and financially sound. Moreover, investors are bullish on what Trump’s fiscal policies promise for economic growth.
Dow Crosses 19,000
The Dow Jones Industrial Average continues to scale record highs, capping a week when the index breached 19,000 for the first time. The index has been on a bull run since the presidential election, registering the third consecutive week of gains as investors anticipate lower corporate taxation and regulations, along with higher infrastructure spending under a Trump administration.
Meanwhile, the broader market is benefitting from the abundant cash flow from government bonds, real estate and gold. As long as investors avoid shares of European companies or those in emerging markets, cashing in from the Trump rally seems pretty easy.
Since the U.S. presidential election, the Dow is up 4.5%. And if the market continues to rally higher, the index is poised to end the year with around 9.9% gains, its best since 2013. Last week, the blue-chip index shot up nearly 300 points, highlighting an 800-point rise since the election.
Trump Raises Hopes for Financial Sector
Investors continue to turn to banks as regulatory burden is likely to ease under Trump presidency. One such change will be the raising of the minimum asset threshold for banking behemoths to $250 billion from $50 billion, which will lend more flexibility, boost valuations, strengthen consolidation and increase lending.
Trump, in the meantime, views the Dodd-Frank regulatory overhaul as a harsh measure, especially, on smaller banks. Trump has called for repealing parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility. As investors’ eye relaxation under Trump, financial behemoths like The Goldman Sachs Group, Inc. GS have seen its shares surge 10% since the election.
Trump Victory: Big for Healthcare & Chemical
Trump remained silent on the drug pricing debate, which could mean fewer headwinds for the industry. Trump also announced plans to “repeal and replace” the Affordable Care Act, better known as Obamacare. Even though the act helps purchase insurance plans at a subsidized rate, it does levy taxes on the industry, which reduces profitability.
Trump’s business tax plan, in the meantime, should benefit biotech companies. He plans to trim business tax rate to 15% from 35%. The lower tax burden is expected to boost profits for large biotech companies. The chemical industry is also reeling under high taxes. America’s corporate tax rate is the highest among the Organization for Economic Co-operation and Development countries. Hence, Trump’s victory is undoubtedly a boon for struggling chemical companies like Dow Chemical Co DOW, LyondellBasell Industries LYB, PPG Industries PPG and Praxair PX.
Trump’s Win to Boost Restaurant Stocks
If Trump successfully rolls back the Affordable Care Act, many restaurant chains won’t have to provide health insurance to employees, while it’s also highly unlikely that he would raise the federal minimum wage.
Meanwhile, deregulations or in other words less-stringent rules will make it easier and cheaper for restaurants to operate. Less government interference would also mean that restaurants can focus on inventing new flavors of Doritos Locos tacos, for instance.
Industrial Companies Benefit from Trump
Trump is in favor of beefing up public spending by hundreds of billions of dollars on infrastructure. He said that he will support more spending on transportation and telecommunications infrastructure, clean water and electricity transmission in order to accelerate economic growth.
He is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects. Industrial companies like Caterpillar Inc. CAT have received a welcome boost, gaining more than 10% since the election.
When it comes to defense spending, Trump has promised greater outlays and troop expansion. Share prices of Lockheed Martin Corporation LMT and General Dynamics Corporation GD also moved north in recent times as defense spending is expected to rise under the Republican president. Both the companies rallied over 10% since Trump’s victory.
4 Blue Chips to Buy Now
The Dow is positioned to perform better once Trump takes office, thanks to his pro-growth policies. Hence, it will be prudent to invest in companies listed in the blue-chip index. And why not? Such stocks have large market capitalization, strong balance sheets and solid cash flow, while they also provide dividends. We have, thus, selected four such blue-chip stocks that flaunt a Zacks Rank #2 (Buy).
The Goldman Sachs Group, Inc. operates as an investment banking, securities, and investment management company. The company’s expected growth rate for the next quarter and year are 66.92% and 16.4%, respectively. The Zacks Consensus Estimate for its current year earnings surged 6.9% over the last 60 days.
UnitedHealth Group Incorporated UNH operates as a diversified health and well-being company. The company’s expected growth rate for the current quarter and year are 47.93% and 24.2%, respectively. The Zacks Consensus Estimate for its current year earnings increased 1.3% over the last 60 days.
E. I. du Pont de Nemours and Company DD is a science and technology-based company that makes a broad array of industrial chemicals. The company’s expected growth rate for the current quarter and year are 55.09% and 17.9%, respectively. The Zacks Consensus Estimate for its current year earnings advanced 2.5% over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
McDonald's Corporation MCD operates and franchises McDonald's restaurants which offer various food products, soft drinks, coffee, and other beverages. The company’s expected growth rate for the current quarter and year are 9.54% and 14.2%, respectively. The Zacks Consensus Estimate for its current year earnings increased 2.2% over the last 60 days.
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