The Dow is currently near 19,000, which is mostly important for psychological reasons. Traders truly enjoy round numbers. The Nasdaq opened up at a record level this past week as well. These numbers just go to show that fear and greed go hand in hand.
The VIX, which is a gauge of volatility of the market is just one of seven components used to calculate the fear and greed index. Since the Friday before the election the VIX has dropped over 40 percent. This is a huge shift in sentiment considering that the VIX was in extreme fear mode right before the election.
It was during this time that the market was in the middle of a 9 day losing streak based on concerns about Hillary Clinton’s campaign losing momentum because of new concerns regarding the FBI probing her emails.
The question is, how did we go quickly from investors fearing a Trump presidency to embracing it? The market has clearly reevaluated what the investing landscape may look like under a Trump presidency. Right now it seems that Wall Street has decided that they are going to give Trump the benefit of the doubt. Investors are likely hoping that Trump is not going to follow through with some of his more controversial economic ideas that some think could lead to significant job losses and trade wars.
One of the biggest reasons behind this sudden mood change of the market appears to be Trumps call for major infrastructure spending. The component of the fear and greed index that looks at how stocks are performing versus bonds shows that investments are at greed levels.
The reason for this is because investors have started purchasing infrastructure stocks such as U.S. steel, Granite Construction, and Caterpillar. These companies are surging based on stimulus hopes.
In addition, investors are currently dumping their bonds and moving them into stocks. This is because Trump’s plan seems to be fueled by more debt, at least in the short term.
This rapid shift in the market is a sign of extreme greed on the index scale. In addition, the rise in demand for junk bonds is also raising the greed levels.
The question becomes, will this rally continue? A lot will depend on what is done about interest rates and whether consumers continue shopping in order to boost the economy.
Overall, the best financial advice is to discuss different options with your personal financial broker. Companies such as Glenmore Investments are looking closely at how the Trump presidency is going to affect future investments as well as taxes. Any financial company that you choose, should be doing the same.