The Trump rally reached another milestone on Tuesday. The Dow Jones industrial average closed above the 19,000 point line for the first time ever. It seems investors are still excited by the prospect of an industrial resurgence in the US under President Elect Trump. Banks are also edging higher on the promise that a Trump administration will do away with a lot of banking regulation, including Dodd-Frank.
Meanwhile the oil rally kept on going strong as well, in what seems to be contradictory. Trump has promised to go ahead with oil projects that Obama blocked, like the Keystone XL pipeline. This could increase the supply of oil at refineries and further the oil glut. Besides that, a pro-coal industry stance may also spell disaster for the price of other energy sources, especially natural gas which would compete directly with coal for energy generation.
Higher Oil Prices and Dow Jones Rally Contradictory?
Whether this rally will continue and solidify is anyone’s guess. In the meantime industrial production may face some headwinds from oil prices, if these continue to rise. Car makers in particular could be affected. Sales of high fuel consumption vehicles like SUVs and pick-up trucks are some of the car industry’s most profitable models.
Nevertheless, the oil price rebound may be short lived, not only because Trump’s energy policy will favor the glut. Recent optimism depends only on OPEC’s ability to reach a deal to cut supply and actually implement it. If history can serve as an indicator, this will not happen, so industrial blue chips which the Dow Jones is based on, will continue to profit from the favorable environment.
Investors should still be cautious. The Trump rally that brought the Dow Jones to the 19,000 point mark, may shatter. Trump is still a riddle, and he is now walking away from various campaign pledges. He could walk away from policies that investors are relying on to profit from this surge. Or perhaps the fact that Trump is moderating his stances may be a sign of market continuity, which investors are buying into in droves. If that is the case, then the Dow Jones might come close to the 20,000 point mark before the most enigmatic candidate in modern US history is sworn in as the 45th President of the US.