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Confidence in Trump drives Dow up sharply

The Dow Jones industrial average has jumped more than 8 percent since Nov. 8, and for the first time is within reach of the 20,000 mark.Richard Drew/Associated Press

The stock market has soared to record highs since Election Day, and many Americans are feeling more than a little conflicted about it.

The Trump rally that has swept through Wall Street in recent weeks is difficult to digest for those troubled by his victory. It’s as if the very agenda they voted against is now stoking Wall Street euphoria — and padding their own retirement accounts.

The Dow Jones industrial average has jumped more than 8 percent since Nov. 8, driven largely by financial companies, and for the first time is within reach of the 20,000 mark. To appreciate how dramatic these new heights are, consider this: in March 2009, during the financial crisis, the Dow hit bottom at 6,443.


The “Trump effect,” as it’s being called, is based largely on hopes that the new president will follow through on his economic promises. Investors are betting that deep tax cuts, a sweeping rollback of regulations, and massive spending on public works projects will juice the economy and boost corporate profits.

“You’re likely to see the momentum behind this rally continue to the inauguration,’’ said Michael Arone, a chief investment strategist at State Street Global Advisors in Boston. After that, he said, there will be tough questions to answer, like how large the tax breaks will be, and whether there will be pushback in Congress on big layouts for infrastructure projects that swell the national debt.

Trump’s handling of relations with Russia and China also will factor into whether the Dow maintains its altitude, as will his plans to slow immigration and deport undocumented workers amid a tight job market.

Cold, hard data will surface in the new year, too — including reports on 2016 corporate profits and outlooks for 2017 — and the market is sure to react.

“We’ll see if the growth people are expecting happens, and if it justifies these stock prices,” Arone said.


Jeff Berger, a marketing and communications executive from Plymouth, said watching the value of his IRA rise right now is scary.

“I have no faith at all that this euphoria is going to continue,’’ he said. “It’s a bubble and it’s temporary, and I expect it’s going to go farther in the other direction.”

So far, however, optimism seems to be winning out. Even eight years into a period of economic expansion — the longest on record was 10 years — market analysts expect corporate profits to grow and stock prices to climb under the new administration.

“The economy is solid and getting better, and the Trump plan will stimulate more growth and a lot more earnings,’’ said Allen Sinai, chief economist at Decision Economics Inc. in New York. “It’s part of what will be, in my view, the longest equity bull market ever.”

The Federal Reserve on Wednesday signaled its confidence that the economy will keep growing at an annual rate of about 2 percent over the next three years, raising interest rates for only the second time in a decade. The quarter-point increase could be followed by three more in 2017, the central bank indicated. That gave investors some pause on Wednesday and Thursday, but probably only delayed the ascent to 20,000.

Trump is thinking much bigger than the Fed when it comes to the nation’s gross domestic product growth: He pledged during the campaign to double it to 4 percent. Some analysts are skeptical.


“I don’t buy any of this,’’ said James Swanson, chief investment strategist at MFS Investment Management in Boston. “I’ve never seen a regime change [alter] the direction of a business cycle.’’

Swanson believes a slowdown is inevitable. With the economy near full employment, he said, it will be hard to keep expanding businesses without more people — and maybe with fewer immigrants. Besides, he said, the hefty tax cuts for the wealthy that Trump favors typically don’t result in more consumer spending.

“You can’t get from 2 percent growth to 4 percent growth with tax policy’’ and infrastructure spending, Swanson said. ”It’s asking for something that’s outside the realm of anything we’ve ever seen in history.”

Meanwhile, Trump’s plans to pump up corporate profits while rolling back financial regulations and climate change protections have many liberals and environmentalists on edge.

“That is obscene,’’ said Adele Audet, a retired state employee who lives on the North Shore. “Greedy people are rejoicing — greedy corporations.”

Stock gains since the election have been strongest among companies expected to benefit from deregulation and government spending on large-scale construction projects. For instance, Caterpillar Inc., the Peoria-based building and equipment company, is up 39 percent for the year, and the stock price of Goldman Sachs Group Inc. has added 35 percent.

UnitedHealth Group Inc., the country’s biggest health insurer, has climbed 36 percent, while shares of energy giant Chevron Corp., of San Ramon, Calif., have increased by 30 percent.


Technology and biotech company stocks have not enjoyed the ride quite so much, due to concerns about trade and immigration and threatened controls on drug prices.

Trump held a meeting this week with a cast of the nation’s most prominent high-tech executives, from Apple Inc.’s Timothy Cook to Facebook Inc.’s Sheryl Sandberg, promising them, “I’m here to help you folks do well.”

But no matter how powerful the Trump effect may be now, company profits in the coming months will have to measure up to their lofty stock prices, said Greg McBride, chief financial analyst at Bankrate.com, a consumer financial website. All this bullishness makes him nervous, he said.

“Eventually, the reality is going to have to meet up with the expectations,’’ McBride said. “Or markets will have to recalibrate.”

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.