Stocks: When Is Too Far Too Fast Too Much?

New highs and new highs, and some more new highs. Where will it all end up, and when will the stock markets pull back?

The when is impossible to guesstimate. The why may be easier to surmise.

Yes, we all know the Dow Jones Industrial Average notched up eight straight winning sessions, buoyed by strong retail earnings earlier in the week. Walmart helped, of course, and so did the fact that recent economic numbers have shown steady growth in consumer activity.

The looming wildcard is what happens to Wall Street in the midst of the nascent Trump administration’s economic policies yet to be brought forth. The agenda may be an ambitious one, and the reality may turn out to be a bit different. The White House staff may be changing, and the immigration debate may be playing out on a global stage and may, of course, have an impact on how corporations hire and even are able to hire.

The Street, as the Street does, is focused on the bottom line. Corporate earnings drive multiples when it comes to stock prices — and that is just a slight generalization. As net income grows, investors are (generally speaking again) willing to pay up for growth. Deregulation and tax cuts can goose earnings per share more quickly than organic growth might gain traction.

Along the steady march higher for stocks, volatility has abated, and investors are obviously sanguine about the near term, despite some White House stumbles. But at the end of the month, the new president is slated to address a joint session of Congress. The anticipation is that Trump will address tax cuts and infrastructure spending and other economic policy goals. The details may have to be in the discourse, as anticipation has run high (evidenced by the rally).

The full-throated support of the Republican party must be in place, too, as any dissent in numbers will lead to the perception that all might not get done on Wall Street’s perceived timetable (or at all). That would hurt stocks. And in a world where months have gone by without a marked decline in stocks, say, a 1 percent down day, might we surmise that a lot has been baked into this stock market soufflé?