Major equity markets in U.S. and UK were driven upwards by Donald Trump’s speech to Congress where he pledged to continue with reductions in corporate tax and significant infrastructure spending as initially promised in his pre-election campaign to boost the economy’s growth.
The U.S. S&P 500, Dow Jones and Nasdaq indices rallied to new high levels as did the UK’s FTSE 100 which also surged to a new record level on Wednesday.
During his speech, he said that he will help rejuvenate business sectors which are currently underperforming and that the new administration’s budget will include a much larger share for infrastructure development. In addition, there was reference to a major tax improvement for the reduction of the tax rate of local companies and also tax relief for the middle class.
Initial reactions estimate that the markets’ momentum was fuelled by Mr. Trump’s speech. But some investors believe that the increase is due to the more general economic strength projected by the release of recent data reports. Bank industry shares were among the best performers together with defence corporations and firms linked with infrastructure development.
There are now high expectations for the upcoming performance of stock indices, with investors forecasting for the U.S. Dow Jones to reach 30,000 and on the other side of the Atlantic the UK’s FTSE 100 to reach above the 10,000-mark. Traders with the opposing forecast now remain with less and less evidence that equities might reverse from this strong upwards trend. It was predicted during most of 2016 that Brexit and the election of Donald Trump would have tragically negative consequences to the markets but in reality it is clear that major indices are moving higher.
On Wednesday the Dow Jones surpassed the 21,000 level, only a month after it broke past the 20,000 barrier. The election of Donald Trump may have troubled the liberal opinion across the globe but until this point it has proven beneficial for the U.S. stock markets. The Dow Jones soared to its highest level ever following Mr. Trump’s victory and continued until now with an increase by more than 12%.
Similarly, the FTSE 100 on the same day rallied by 1.4% and reached at some point 7,382.3. After a prolonged period of the index not being able to project consistent strength, it is now setting new records on a regular basis. Market bulls have now began expecting that the index may reach the 10,000 level but this will depend on the future of the UK’s economy outside the EU.
The UK economy has to march through Brexit successfully, until now the economic performance exceeded many investor’s expectations following the referendum result. There was no slowdown in growth and in the real estate market, and unemployment has remained at low levels. What now remains to be seen is the result of negotiations between UK and European Union. A number of corporations are set to relocate their UK offices as a result of Brexit in order to remain within the EU, however, possibly lighter regulation and less taxation in the UK along with positive economic growth may be enough to convince them to stay on this side of the Dover Strait.