Summary:

• More records fell for the US500 yesterday with a new all-time high at 2577
• Blackrock chairman Fink sees market setback if tax reform fails
• Mcdonald’s narrowly misses with latest earnings but shares called to open higher

2017 has been a year of records for US stock markets with the US500 posting an all-time high on no fewer than 66 occasions. This is the most in a single year in over two decades and what is perhaps even more remarkable than the number of new peaks is the lack of significant drawdowns. 

Yesterday saw the S&P500 break its previous record for the number of days without a 3% drop, with a fall of this scope not seen in the past 241 days. Furthermore the market has fallen by 1% or more in a single day on only four occasions this year which is the least number of times since 1964.

 Monday saw the S&P500 break the record for the longest ever run without a 3% correction – 241 days. Source: LPL Research

The Wall Street open on Monday did in fact see some selling and the drop ended a run of 33 straight days for the market without even a 0.5% drop! The average daily close is just 0.3% this year, the lowest level since 1965. The US rally has been part of a global move higher with Japan overnight posting a 16th consecutive day of gains to break its own previous all-time record set just yesterday.  

 There was some selling seen on the Wall Street open yesterday with the market declining by more than 0.5% for the 1st time in 33 days! Source: xStation

With such low volatility on the moves higher, the price action is not symbolic of a top and given the steady gains it is hard to argue the case that this is a blow-off top after a multi-year rally. So what could derail this latest move higher? Whilst the market has been making gains on the whole since the 2009 low the more recent rally can be attributed largely to last year’s election victory for Trump. One key aspect why this was seen as positive was the proposed large scale tax reform which would in effect provide a tax cut to US firms. 

Larry Fink, the chairman of Blackrock, believes that here lies a possible cause of upset, stating in a recent interview that the stock market’s next big move will depend on the Trump administration’s tax reform plan. Fink, who is the head of the world’s largest money manager said “If we did not get tax reform, we would have a market setback.”

However, he also noted that “policy has proven disappointing so far. I think if we get a tax reform, which I think we’re going to get in the fourth quarter or first quarter then I think the market will see another leg up.” 

With earnings season now in full swing, traders may be keeping a keen eye on Mcdonald’s shares today after the fast-food outlet reported ahead of the bell. The firm reported earnings per share of $1.76 against a consensus of $1.77. Despite the miss the overall feeling of the release is fairly upbeat with some solid sales growth seen. Sales at US restaurants open at least 13 months rose 4.1% compared to 3.4% expected as more customers were seemingly attracted with the $1 and $2 beverages and premium customizable sandwiches such as Sriracha artisan chicken.  

 Mcdonald’s share are expected to open higher after their latest earnings release. Source: xStation

Shares are higher by a little more than 1% in the pre-market and it seems like some of the selling prior to the release was misplaced. The stock hit an all-time high at 167.76 on Friday before ending the day lower and then there was a drop of almost 2% on Monday. The market remains in a clear uptrend and if the prior high at 167.76 can be taken out then further upside may lie ahead.