With the Dow Jones set to open just 15 points away from 20,000, and likely to cross the key psychological threshold, here is one explanation for the overnight euphoria from JPM's Adam Crisafully.
Market update – the solid US trading from Tues translated into gains across Asia and (so far) in Europe. As far as actual incremental news, there wasn’t too much overnight although the big-cap earnings reports were mostly solid (highlights include Santander, STX, and TXN) while Japan’s Dec exports topped expectations. On the political front, Trump will make a series of immigration/national security announcements today but investors are still focused on the “Big 3” of tax reform, deregulation, and infrastructure spending.
Investors became very enthused about the infrastructure spending angle of the Trump agenda on Tues following Schumer’s $1T bill and the oil pipeline Oval Office media events but in reality the narrative around this topic changed very little in the last 36 hours (it remains the case in general that the gap between reality and expectations w/regards to Washington is still too large and this is a market risk).
Keep in mind that while everyone is focused on earnings and politics, the Fed will reassert itself back into the narrative soon – the first FOMC decision of the year hits Wed 2/1, the Jan jobs report is Fri 2/3, Yellen will prob. conduct her semiannual testimony in early/mid-Feb, and Trump could soon announce his Fed nominees (including two board of governors and the vice chair of bank regulation).
And the macro big picture:
US macro update - the rally remains a function of growth and Washington. The growth part remains intact. The gap between Washington expectations and reality is still too large and while closing it will likely create headwinds for stocks it shouldn’t be fatal to the SPX (taking Washington expectations fully out of the ’18 EPS estimate would take the number from ~$145 now down to the mid/upper-$130s).
Source: JPM