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Stock market steadies as Trump gets down to business

Stock market steadies as Trump gets down to business
Stocks rose in choppy trading on the first day of Donald Trump's presidency. (Richard Drew / Associated Press)

When Donald Trump took the presidential oath Friday, the stock market was trading modestly higher with the Dow Jones industrial average up 97 points.

Prices then moved in choppy fashion as traders kept glancing at televised views of Trump's inauguration in Washington.

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"It certainly was an all-eyes-on event," said Art Hogan, chief market strategist at Wunderlich Securities.

By the closing bell, the Dow had gained 94.85 points to 19,827.25, and that was enough to snap the Dow's string of five consecutive losing sessions as Wall Street headed into the weekend holding its collective breath over what President Trump will do next.

"Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families," Trump said in his inaugural speech, which also included his oft-repeated pledge that his policies would be governed by "buy American and hire American."

Stocks soared to record highs in the six weeks after Trump's election Nov. 8, with the Dow trading less than one point from the 20,000-point milestone on Jan. 6. But the "Trump rally" then ran out of steam as initial elation over his blueprint for business-friendly policies began fading, and investors took profits on their post-election gains.

"The euphoria got ahead of itself," said Jerry Braakman, chief investment officer of First American Trust.

Even so, stocks remain near record levels. And now that Trump is in the White House, the stock market is at a crossroads as investors mainly focus on three things: early concrete steps Trump takes on taxes, trade, fiscal stimulus and other economic matters; the trend of inflation and interest rates; and the level of quarterly profits being reported by corporate America.

"Earnings are the key to the 2017 stock market outlook," Burt White, chief investment officer of LPL Financial, said in a recent note to clients.

Analysts' earnings estimates bode well for stocks to further extend last year's solid gains as well as the overall bull market in share prices that's now lasted for several years.

"We expect earnings growth in the mid- to high-single digits in 2017, well above the flat earnings of 2016," White forecast.

The Dow Jones industrials surged 13.4% last year in large part because the famed average of 30 blue-chip stocks jumped 7.8% between Trump's election and New Year's Day. The Dow's record high close of 19,974.62 was set Dec. 20.

The broader Standard & Poor's 500 index gained 9.5% last year and set a record high of 2,276.98 on Jan. 6. The tech-heavy Nasdaq composite index rose 7.5% last year and reached an all-time record 5,574.12 on Jan. 13.

Leading the Dow industrials Friday were drugmaker Merck & Co. and consumer products giant Procter & Gamble Co., both of which gained more than 3%. International Business Machines Corp. rose 2.2%.

The S&P; 500 gained 7.62 to 2,271.31 on Friday, while the Nasdaq composite rose 15.25 to 5,555.33.

Trump's call during his campaign for corporate and individual tax cuts, less regulation, more infrastructure building and a tougher U.S. stance on trade were key reasons why the market rallied after the election. His call for the repatriation of billions of dollars of profits that U.S.-based firms hold overseas also was seen as a bullish prospect for stocks.

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Sectors enjoying big gains after Trump's election included banks and other financial services firms thought to benefit from less regulation, along with industrial and materials companies that could benefit from more federal infrastructure spending.

But it still unclear how — and how soon — those efforts will play out. "We're all keeping an eye on the first 100 days" of Trump's presidency, Hogan said.

Even if Trump takes action relatively soon, it could take time for those moves to find their way to corporate coffers, analysts said.

"The potential economic impact of reduced regulations, higher infrastructure spending and tax reform seems unlikely to be felt until 2018," Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said in a research report this week.

In the meantime, Trump has shown he can still quickly move markets. His complaints on Twitter about certain automakers, defense firms and others have sent their stocks briefly lower. After he called the U.S. dollar "too strong" last week, the dollar fell against other major currencies.

The bond market is speculating that the fiscal stimulus, and a stronger economy, could mean more inflation and higher interest rates.

That's a key reason why the yield on the 10-year Treasury note has jumped to 2.46% as of Friday from 1.85% when Trump was elected.

The Federal Reserve Board lifted its benchmark short-term interest rate a quarter point last month, to a range between 0.50% and 0.75%, and the central bank is expected to lift rates further this year if the economy appears robust enough.

But even as investors grapple with questions about Trump's actions and the fallout, they still might be in the mood to bid stock prices higher based on how the companies currently are performing, Braakman said.

"Good companies with good earnings are still going to do well," he said. "The politicians don't control everything."

West Texas intermediate, used as a benchmark to price U.S. crude, gained $1.05, or 2%, to $52.42 a barrel. Brent crude, the international benchmark, rose $1.33, or 2.5%, to $55.49 a barrel. Wholesale gasoline increased 3 cents to $1.57 a gallon, heating oil gained 3 cents to $1.65 a gallon and natural gas slipped 16 cents to $3.20 per 1,000 cubic feet.

The dollar fell to 114.31 yen from 114.80 yen on Thursday. The euro increased to $1.0707 from $1.0659. The British pound rose to $1.2378 from $1.2337.

Gold declined $3.40 to $1,204.90 an ounce, silver slid 3 cents to $17.03 an ounce, and copper dropped a penny to $2.63 a pound.

Twitter: @PeltzLATimes

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