U.S. equities and stock exchange traded funds are on pace for their largest quarterly gain since 2015, strengthening on a Trump-induced rally as traders bet that the new administration could bring about a number of pro-business policies to stimulate economic growth.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were up 0.1% Friday and gained 6.1% year-to-date.
U.S. stocks maintained their post-election rally in the first three months of the year, with sectors expected to benefit from changing U.S. policies following the presidential elections leading the charge.
These Trump trades, though, lost some momentum in the later weeks of the quarter on concerns over President Donald Trump’s ability to enact its pro-business agenda in light of its recently failed attempt to push through an Obamacare replacement in a Republican controlled Congress.
Nevertheless, investors shifted their focus to companies expected to expand with the economy in the late business cycle.
“A lot of people are saying the Trump trade is over, but I think the rally is predicated on fundamentals, not on Donald Trump, ” Jeff Schulze, investment strategist at ClearBridge Investments, told the Wall Street Journal.
However, traders grew cautious toward the end of the first quarter, with listless trading on the last day, as many looked to lofty valuations and doubts over Trump’s ability to deliver on his promises.
“We’re really only about 1 percent below the record high again, so valuations are starting to creep higher,” Randy Frederick, vice president of trading and derivatives at Charles Schwab & Co Inc, told Reuters. “If earnings reports come in as expected, then they will catch up with the valuations, if they don’t then I think the market will start to pull back.”
According to Thomson Reuters, first-quarter S&P 500 earnings are projected to rise 10.1%. The benchmark index is now trading at around 18 times earnings estimates for the next 12 months, compared to the long-term average of 15.
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