Is Trump Holding the Stock Market Hostage?

Political news junkies were expecting a major market pullback yesterday.

Trump’s scandals are catching up with him, we’re told. A jury slapped eight guilty verdicts on the president’s campaign chair and his personal lawyer is flipping after admitting to campaign finance violations. Impeachment rumors are swirling. A storm is brewing — and investors should be worried.

Instead, the Dow finished Wednesday down just 88 points, the S&P hovered near breakeven, and the Nasdaq led the averages with a gain of almost 0.4%

Make no mistake — Trump’s feeling the heat. In fact, he told Fox News earlier this morning that if he were impeached, he believes the stock market would crash.

But investors aren’t selling. Futures haven’t budged an inch this morning and the averages are set to open near their highs as political noise takes over our airwaves.

How’s the bull market fighting off another truckload full of political scandals?

For starters, a red-hot economy and positive market momentum are exerting more influence over investors than the drama in Washington. As much as Trump might want the stock market to reflect his performance as president, stocks don’t appear to care who lives in the White House.

Consider this insight from Horizon Investments strategist Greg Valliere, via MarketWatch:

“If the trade wars cool off a little this fall, we still think stocks can grind higher,” Valliere says. “It’s not a pretty picture here in Washington, but as long as Trump doesn’t go totally off the rails, investors can compartmentalize.”

The big grind higher into fall trading isn’t just about the S&P 500 flirting with all-time closing highs or a resurgent tech sector. We’re seeing impressive breakouts throughout the market.

Take small-caps. We’ve closely tracked small-cap consolidation since the Russell posted a higher low in late July. Just last week we put the sector on breakout watch, noting that small stocks just needed a little nudge to get over the hump.

small caps

You asked and the market delivered. The small-cap Russell 2000 ripped higher to start the week. It’s once again perched at all-time highs following a ferocious four-day rally. The Russell is now up 1.75% on the week, compared to a gain of just 0.4% in the S&P 500.

To be clear, this is not the type of action you see in a weak market that’s teetering on the edge of a potential crash. As I’ve noted before, the Russell’s outperformance shows us that investors are still willing to pile into riskier assets — a move that’s bullish for the entire market. I said just last week that new highs were in store for the major averages if small-caps break out first. And here we are.

The action we’re seeing this week could be the precursor to a broad-based fall rally. Despite what you’re hearing on the evening news, I believe 2018 trading will go out with a boom rather than a whimper. Despite his rhetoric, Trump lacks the power to hold the market hostage right now.

You’re well positioned to profit from the ensuing rally. Last week, you added to your iShares Russell 2000 ETF (NYSE:IWM) position just as small-caps were tracking toward this powerful breakout. This pre-breakout buy is paying off handsomely today. More gains are on the way…


Greg Guenthner

You May Also Be Interested In:

One Sector, Two Plays, Big Money

Earnings and interest rates should shape the trend for stocks in the weeks ahead. Today I’ll show you which stocks and sectors to be wary of, and which ones will be stars post earnings.

Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO and Seven Figure Signals. Over the past decade, Greg has helped build the small-cap and technical research teams. His analysis has appeared in Forbes, Yahoo Finance, Bankrate, and countless other publications. Greg is a member of the CMT Association and holds the Chartered...

View More By Greg Guenthner