Stocks Surge Again: Is There Steam Left?
The optimism of the previous (fourth) quarter carried over into the new year, with stock indices posting all-time highs. The gains notched in the first quarter would, in many years, be considered normal for an entire year. Most of the gains took place in the first two months of the quarter as a continuation of what has been called the "Trump Bump". Stocks had been riding the coattails of continued modest but sustainable economic growth. Anticipation for federal spending and regulatory changes has continued that momentum. Enthusiasm waned in March as the expectations for change collided head on with a divided Republican party and the inability to pass new health care legislation. The upcoming proposed tax law changes and the conflict between promised infrastructure spending and deficit spending and the debt limit could create a headwind for the new administration. Even though the Republican party controls the White House, the House, and even the Senate, political fractures have limited legislative results. President Trump has made liberal use of Executive Orders to accomplish a laundry list of actions he promised, but that has its limits. The President will increasingly confront the hard issue of what can and cannot be done based solely on his will. He will need the support of Congress for more sweeping changes. This is not to say the party is definitely over. The potential for economic stimulation is still out there, if a way can be found without creating massive deficits.