The “Trump Rally” for stocks seemingly hit a wall this week. Optimism among investors following the election of Donald Trump has given way to more of a wait-and-see attitude and even animosity in the wake of several administration actions. There are times when stocks are the victims, as well as the beneficiaries, of politics. Following President Trump’s move to restrict immigration from seven majority-Muslim countries, the market in general slumped, but airlines and technology firms were among the hardest hit. Within the SSR portfolio, Delta Airlines (Group 4: DAL) was among the weakest performers this week, losing 3.8%. International carriers such as Delta could suffer from increased travel restrictions, but the company was also hurt by an outage in its information technology systems last weekend, which led to widespread cancellations. However, it is worth noting that Alaska Airlines (Group 2: ALK) did not fare as badly this week as Delta since its flight operations are primarily domestic. ALK shares were down 1.1% for the week.
The technology industry decried the Trump administration’s temporary travel ban from the majority-Muslim nations, expressing concerns about the effects the restrictions would have on their employees and their ability to recruit from abroad. On Thursday, Microsoft (Group 2: MSFT) filed a formal request for an exception the travel ban, saying that visa-holding students and workers who are “responsible known travelers with pressing needs” should be permitted to re-enter the nation under the sponsorship of U.S. companies. For the week, MSFT shares fell 3.2%.
Some bank executives have also said that the travel order could hinder their global workforces.
An analysis by The Wall Street Journal shows that the new Trump administration is on the minds of many corporate executives. Of the 242 companies in the S&P 500 that held conference calls or other investor events in January, half mentioned the president directly or indirectly, according to The Wall Street Journal. Specifically, President Trump’s name was used about a third of the time, while half of the time, participants mentioned the “new administration.” As far as specific policies the new administration may tackle, “tax reform” was cited the most by a third of companies. Proposals for a border-adjusted tax was also a popular topic of discussion, mentioned in calls at more than 60 companies.
As we enter the heart of corporate earnings season, company announcements are also playing a key role in the market and individual stock price activity. So far, 20 of the 36 companies in the SSR tracking portfolio have announced earnings for the fourth calendar quarter of 2016. Among these 20, four have fallen short of their consensus estimate and two have reported earnings that were in line with analyst forecasts. The remaining 14 have posted positive earnings surprises. Currently, the median earnings surprise for the SSR portfolio for this earnings season is +2.0%.
Wayne A. Thorp, CFA
Senior Financial Analyst, AAII
SSR Investment Committee
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The Stock Superstars Report (SSR) publication was developed to educate individual investors on how to build a stock portfolio using a mix of strategies. The SSR is designed to provide all the information you need to manage a stock portfolio as well as to teach you about timely investment principles relating to the SSR portfolio and stock investing in general.