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'Big, fat, ugly bubble' getting bigger? How Trump (and the Fed) blasted the Dow past 21,000

President Donald Trump speaks during a meeting with House and Senate leadership, Wednesday, March 1, 2017, in the Roosevelt Room of the White House in Washington. (AP Photo/Evan Vucci)

Add one more bullish signal to the roster: A presidential president.

The Dow Jones industrial average enjoyed its biggest gain of the year, surging to a new record high above 21,000 on Wednesday, a day after U.S. President Donald Trump delivered a surprisingly reassuring address to Congress amid upbeat economic news.

The blue-chip Dow, the subject of front pages just a month ago when it closed above the 20,000-threshold for the first time ever, ended the day at 21,115.55, up 303.3 points or 1.5 per cent.

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The index has added more than 1,000 points in just 17 trading days.

The broader S&P 500 closed at 2395.96, up 1.4 per cent. Canada's S&P/TSX composite index broke a five-day losing streak, closing at 15,599.68, up 200.4 points or 1.3 per cent.

The rally follows comments from Federal Reserve officials who have been building the case for interest rate hikes, reflecting rising confidence in the health of the U.S. economy.

New York Fed president William Dudley told CNN on Tuesday that the need for monetary tightening had become "a lot more compelling." He highlighted the rise in household and business confidence.

The Conference Board reported that its consumer confidence index notched another gain in February, rising to its highest level since 2001.

As well, U.S. manufacturing activity picked up for the sixth straight month.

"The rise in the ISM manufacturing index in February suggests that the factory sector is experiencing a resurgence after the weakness over the past couple of years," Andrew Hunter, U.S. economist at Capital Economics, said in a note.

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"It also suggests that GDP growth is set to pick up in the first quarter," Mr. Hunter added.

Markets are now pricing in an 80 per cent chance of a rate hike at the Fed's next policy meeting in March, up from a 52 per cent chance just one day ago, according to Bloomberg. Bond markets also reacted. The yield on the 10-year U.S. Treasury bond rose above 2.64 per cent, for its largest one-day gain in about six weeks.

But the stock market rally also follows a remarkably strong performance from Mr. Trump on Tuesday evening, suggesting that investors may be relieved that the U.S. President has put aside his inflammatory combativeness and belief that the world is teetering on the edge of catastrophe.

For one, he revisited a campaign pledge to embark upon a huge spending program to improve U.S. infrastructure, easing concerns that he could bury the plan because of ideological opposition from congressional Republicans.

"Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways, gleaming across our very, very beautiful land," Mr. Trump said.

"To launch our national rebuilding, I will be asking Congress to approve legislation that produces a $1-trillion investment in infrastructure of the United States, financed through both public and private capital, creating millions of new jobs," he said.

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Republicans, including House speaker Paul Ryan, applauded the proposal, suggesting they may be on board with something that could provide a jolt of economic stimulus.

Mr. Trump also struck a peaceful chord that could sit well with anyone hoping the United States can improve its relationships abroad, contrasting with some of Mr. Trump's earlier and more belligerent statements on trade with China and Mexico in particular.

"Free nations are the best vehicle for expressing the will of the people, and America respects the right of all nations to chart their own path. My job is not to represent the world. My job is to represent the United States of America," he said.

And for anyone concerned that Mr. Trump believes that the stock market is dangerously overvalued – he called the market a "big, fat, ugly bubble" during a presidential debate in September – he now appears to see rising stocks as an alternative to low approval ratings.

In updating Congress on the progress he has made since his inauguration in November, Mr. Trump said: "The stock market has gained almost $3-trillion in value since the election on Nov. 8, a record."

If the stock market is the poll he wants to focus on, investors may believe that he'll do anything to maintain the adulation.

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President Trump's views of the stock market took on a decidedly different tone after becoming elected. Here's a sampling of his recent comments:

"Now, look, we have the worst revival of an economy since the Great Depression. And believe me: We're in a bubble right now. And the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that's going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful." -First presidential debate (Sept. 26) transcript

The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars! -Dec. 26 Twitter posting

Stock market hits new high with longest winning streak in decades. Great level of confidence and optimism – even before tax plan rollout! -Feb. 16 Twitter posting

Great optimism for future of U.S. business, AND JOBS, with the DOW having an 11th straight record close. Big tax & regulation cuts coming! -Feb. 25 Twitter posting

-Staff

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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