(Reuters) – Wall Street reached record highs on Friday, with the S&P 500 surpassing 2,500 points as telecommunications shares rose and technology bounced back after two days of declines.
The S&P 500’s breach of the 2,500-mark came less than four months after it closed above 2,400, and brought 2017’s gain to nearly 12 percent.
Professional investors frequently say they see little special significance in the S&P 500 and Dow Jones Industrial Average hitting round-numbers in the hundreds and thousands. But such milestones do affect the sentiment of investors on Main Street, said Phil Blancato, head of Ladenburg Thalmann Asset Management in New York.
“People are concerned about missing out as the market continues to rally. They think maybe they need to finally jump in,” Blancato said. “The behavior of the retail investor is more important than ever.”
The S&P 500 information technology sector .SPLRCT rose 0.30 percent, powered by an Nvidia-led surge in chipmakers, while Apple rose 1.01 percent in its first gain since unveiling new iPhones on Tuesday.
The semiconductor index .SOX surged 1.71 percent, boosted by Nvidia’s (NVDA.O) 6.32-percent jump to a record high after Evercore ISI raised its price target on the stock.
AT&T (T.N) rose 2.15 percent and Verizon Communications (VZ.N) added 1.44 percent. Along with T-Mobile, they are offering deals for the newest iPhones that are less generous than in the past.
Wall Street largely shrugged off reports showing an unexpected drop in U.S. retail sales last month and the first drop in industrial output since January, both in part due to the impact of Hurricane Harvey.
“Investors are keeping an eye on the retail sales data, thinking it may be transitory, and are focusing on growth areas such as technology, which is mostly immune to policy decisions in D.C. and has avoided all the global noise,” said Michael Antonelli, managing director of institutional sales trading at Robert W. Baird in Milwaukee.
U.S. stocks have surged this year, despite turmoil in the White House, doubts about President Donald Trump’s ability to push through his pro-business reforms, uncertainty over the timing of interest rate hikes, and lately, tensions over Pyongyang’s missile tests.
The Dow Jones Industrial Average .DJI rose 0.29 percent to end at 22,268.34 points, while the S&P 500 .SPX gained 0.18 percent to 2,500.23, records for both.
The Nasdaq Composite .IXIC added 0.3 percent to 6,448.47.
Advancing issues outnumbered declining ones on the NYSE by a 1.76-to-1 ratio; on Nasdaq, a 1.47-to-1 ratio favored advancers.
Earlier, North Korea fired a second missile in as many weeks over Japan, drawing criticism from global leaders but barely moving shares as investors await the next catalyst – the Federal Reserve’s meeting on Sept. 19-20.
The S&P 500 is trading near 17.6 times expected earnings, down from 17.9 at the end of July but still much higher than its 10-year average of 14.3, according to Thomson Reuters Datastream.
Boeing (BA.N) rose 1.53 percent to a record high after Canaccord Genuity raised its price target for the stock.
Among the laggards was Oracle (ORCL.N), which sank 7.67 percent, its worst day in more than four years after disappointing forecasts for its profit and cloud business.
About 8.5 billion shares changed hands on U.S. exchanges, above the 20-day average of 5.9 billion shares.
The sell-off accelerated in afternoon trading, with the Nasdaq falling 2.4 percent, and names like Facebook and Apple, down 4 percent. The S&P tech sector was down 3.3 percent Friday but was still up 18 percent for the year.
Goldman Sachs on Friday released a report on the top five outperforming mega-cap names in tech with some warnings on valuations and concerns that their volatility has become extraordinarily low. In fact, the stocks had become closely correlated to safe haven plays, like bonds and utilities.
Goldman studied the valuations of the tech leaders, known as the FAAMG — for Facebook, Amazon.com, Apple, Microsoft and Alphabet(Google). (It left out Netflix from the original FANG, since its impact on the S&P 500 is still too small.)
What it found is that the current-day tech stocks have advantages in cash flow, valuation and cash balances over the top five tech names in the first quarter of 2000 — just before the bubble burst. But the current group is behind in profitability, as measured by gross profits and total assets. The tech bubble names Goldman studied included Lucent, Cisco, Oracle and Intel. Microsoft was the only stock to make both lists
The FAAMG names have added a total of $600 billion of market capitalization this year — the equivalent of the GDP of Hong Kong and South Africa combined, says Goldman. The group makes up about 13 percent of the S&P 500, but has accounted for almost 40 percent of its year-to-date performance. The stocks are among the top holdings of hedge funds. The analysts noted that mutual funds, aimed at core, growth and value, are overweight all but Apple, and the five companies combined are 11.8 percent of those mutual fund holdings.
Why Wall Street’s most accurate analyst urged traders to buy the tech wreck 10 Hours Ago | 03:31
The analysts said that momentum and growth as market factors are elevated and the tech names are appealing because investors may be looking for opportunities that are not dependent on policy changes in Washington.
UBS also commented on the FAAMG group of big tech stocks Friday. Julian Emanuel, equity and derivatives analyst, still likes tech but says they could be vulnerable in the near term as investors rotate to other groups.
“That could be a short-term headwind given the outperformance. But the long-term earnings growth story remains intact,” he said. Emanuel noted there were four times when a handful of tech names became so powerful. Twice, it ended badly—after 1999 and 2007. But they also were leaders in 1993 and 2005.
He said it’s notable that on the previous occasions, Microsoft fell 62.8 percent after the 2000 bubble and was down 45.4 in the financial crisis in 2008. “Such declines now appear as blips on a long-term chart,” Emanuel noted.
The FAAMG group does break some historic trends. Goldman Sachs says the volatility in the FAAMG bloc is lower than not only the S&P 500, but the staples sector and utilities. The group continues to be closely tied to tech and discretionary stocks, but it has also started trading more with the other sectors following the U.S. election and its correlation to staples and utilities is at a five-year high.
“Steady sales growth, rising cash balances and limited market shocks have dampened realized volatility to the point that they now look more like consumer staples than tech stocks. If FAAMG was its own sector it would screen with the lowest realized volatility,” the Goldman analysts wrote.
But they also noted that investors are using the group as a bond proxy. “Since November, correlation has turned negative suggesting that higher bond yields, typically associated with stronger growth, will weigh on stocks while falling bond yields are a good thing,” they said, adding it runs counter to history.
While they may be loved, today’s tech darlings aren’t without potential flaws.
“We believe low realized volatility can potentially lead people to underestimate the risks inherent in these businesses including cyclical exposure, potential regulations regarding online activity or antitrust concerns or disruption risk as they encroach into each other’s businesses,” the Goldman analysts noted.
Momentum in the group “has built a valuation air pocket” and is “creating cause for pause,” they wrote.
“The fear is that if fundamental events cause volatility to rise, these same passive vehicles will sell and exacerbate downside volatility,” they added. Goldman points to a warning in the options markets, which is pricing in more volatility for the companies when looking at options three months out, and prices suggest the FAAMG stocks would be more volatile than the average stock in 6 of 9 major sectors, including tech.
Free cash flow for FAAMG has plateaued after doubling between 2006 and 2016, and at the same time the group has increased capital expenditures to 17 percent while cash flow from operations grew at less than 10 percent. Cash levels have also plateaued as a percent of market cap.
Comparison of FAAMG stocks to 2000 tech bubble leaders
Source: Goldman Sachs
But when looking back at the year 2000, all five companies have eight times more cash than the big tech stocks had in the bubble. Free cash margins are modestly better than the tech bubble companies but yields are higher.
Goldman said that the gross profits and total assets were significantly higher for the tech bubble names and that could be because today’s businesses have become more capital intensive. Return on invested capital was also higher but that may be because companies now are using accelerated depreciation.
As for size, the FAAMG stocks are almost 30 percent bigger and they aren’t as large a portion of the S&P, 13 percent compared with 15.8 percent in 2000. FAAMG is an even larger 43 percent of Nasdaq and provided 55 percent of its gains so far this year.
During the bubble, the five largest tech names were trading at almost 60 times two-year forward earnings, with the cheapest stock trading at 36 times. Now FAAMG trades at 23 times forward two-year earnings with only one, Amazon, over 30 times.
President Trump on Friday is slated sign three executive actions meant to spark reviews of tax and financial regulations, the latest in the White House’s effort to rethink and potentially roll back federal oversight.
The precise impact of the new actions is unclear, but they could lead to a loosening of restrictions on the way companies are structured and scale back regulations on large financial companies.
Trump will sign all three documents at the Treasury Department, the agency said.
The documents will include an executive order that directs Treasury Secretary Steven Mnuchin to “review significant tax regulations issued in 2016” to see if they “impose an undue financial burden on American taxpayers, add undue complexity, or exceed statutory authority.”
One of the most sweeping tax regulations imposed in 2016 was written by the Obama administration’s Treasury Department and it made it much harder for companies to use a process known as “inversion” to incorporate overseas in places like Ireland so that they could avoid paying U.S. taxes.
A spike in the number of companies using this tax loophole – particularly pharmaceutical firms – outraged U.S. lawmakers from both parties and prompted the Treasury Department to act. But many firms complained that the Obama administration was overstepping its authority. It’s unclear if the inversion rule will be part of the new Treasury review.
Trump will also sign two new memorandums on Friday at Treasury, though they both seem to overlap with reviews that are already underway.
One will direct Mnuchin to review something called “orderly liquidation authority,” Treasury said, which is a regulatory process that requires a process for winding down large, failing financial companies. This review would look at whether an “enhanced bankruptcy authority” would be better than the process established by the Dodd-Frank financial overhaul law. The review also asks Treasury to consider whether the liquidation rules “could lead to excessive risk-taking” by financial companies.
The Treasury Department is already conducting a review of existing financial regulations, however, and it’s unclear how this new memorandum would direct the agency to do anything differently from what it is already considering.
The other presidential memorandum would call for a review of the way the Financial Stability Oversight Council designates certain companies for enhanced financial regulation, a threshold set up by the Dodd-Frank law. Many financial companies and Wall Street executives have complained about this process, but it is another part of the financial regulatory system that was supposed to already be under review.
“If President Trump announces that North Korea launched a missile that landed within 100 miles of Hawaii, would most Americans believe him? Would the rest of the world?” the Journal’s editorial board wrote Tuesday night. “We’re not sure, which speaks to the damage that Mr. Trump is doing to his Presidency with his seemingly endless stream of exaggerations, evidence-free accusations, implausible denials and other falsehoods.”
After describing Trump’s thoroughly refutedclaim that he was wiretapped by former president Barack Obama — which the Journal argued has damaged his relationship with allies like the United Kingdom and his own agency heads like FBI Director James Comey — the editorial board noted that “Mr. Trump is his own worst political enemy.”
It added, “He survived his many false claims as a candidate because his core supporters treated it as mere hyperbole and his opponent was untrustworthy Hillary Clinton. But now he’s president, and he needs support beyond the Breitbart cheering section that will excuse anything.”
Many of the Journal’s current criticisms of Trump were foreshadowed in its refusal of endorsement regarding the Republican candidate in November.
“The strongest argument against Mr. Trump, as Hillary Clinton has recognized, concerns his temperament and political character. His politics is almost entirely personal, not ideological,” the paper wrote. “He overreacts to criticism and luxuriates in personal feuds.”
The Journal added, “He ignores or twists inconvenient facts, and even when he has a good point his exaggerations make it harder to persuade the public. Yet a president needs the power to persuade.”
Trump isn’t alone in having his credibility called into question as a result of the wiretapping claims. “Spicer shred whatever credibility he may have had left with his remark about Manafort,” writes Dylan Byers of CNN on Tuesday. “When Manafort took over Trump’s campaign last June, Spicer was unequivocal about his role: ‘Paul’s in charge,’ Spicer, then the Republican National Committee’s communications director, told Reuters. Indeed, Manafort had already taken control of the campaign — including its budget, hiring decisions and media strategy — two months earlier.”
Byers points out that Spicer’s new claim about Manafort, which is that he had a “very limited role” in the campaign “for a very limited amount of time,” could not be characterized as mere spin. “It was a falsehood. And Spicer knew it was a falsehood when he said it, because he had previously acknowledged that Manafort was ‘in charge’ of Trump’s campaign.”
(CNN)Former Kentucky Gov. Steve Beshear delivered the Democratic Party’s response to President Donald Trump’s address Tuesday night, criticizing Trump for not living up to his populist campaign trail rhetoric and pressing for compromise solutions on health care reform.
“You picked a Cabinet of billionaires and Wall Street insiders,” Beshear said, sitting in the Lexington Diner in Lexington, Kentucky. “That’s not being our champion. That’s being Wall Street’s champion.”
He delivered the remarks plainly and occasionally awkwardly, with a setting and tone entirely at odds with the President’s speech before a Joint Session of Congress.
“I’m a proud Democrat, but first and foremost, I’m a proud Republican and Democrat and mostly American,” Beshear began, perhaps misspeaking.
He rattled off his experiences as a former Democratic leader in a deeply red state, pointing to his aggressive implementation of Obamacare as an achievement and claimed to have focused on working with Republicans.
Taking a shot at Trump’s rhetoric, Beshear said: “The America I love has always been about looking forward, not backward.”
He pledged that Democrats were “committed to creating the opportunity for every American to succeed” and began making a policy contrast with Trump over working class values.
“One of your very first executive orders makes it harder for those families to even afford a mortgage. Then you started rolling back rules that provide oversight of the financial industry,” Beshear said in a message directed to Trump.
On the first day of Trump’s presidency, his administration eliminated a mortgage rate cut set to go into effect by the Department of Housing and Urban Development, and in early February he signed an executive order putting a rule requiring retirement advisers to act in their clients’ best interests under review.
He said Obamacare needed fixes, but said no Republican alternative put forth so far would improve coverage or help those most at risk.
“You and your Republican allies in Congress seem determined to rip affordable health insurance away from millions of Americans who most need it,” Beshear said. “This isn’t a game. It’s life and death.”
The Kentucky governor called on Republicans to honor the intent of the health care reform law Democrats passed under Obama.
“In 2010, this country made a commitment that every American deserved health care they could afford and rely on,” Beshear said, imploring the people to help Democrats by “speaking out.”
He turned to the national security arena, where he warned Trump was overly cozy with Russia and hurting the US’ relationships with other nations, which he said “makes us less safe.”
“President Trump is ignoring serious threats to our national security from Russia, who is not our friend, while alienating our allies,” Beshear said.
Finally, Beshear spoke out against Trump’s attacks on immigrants, the media and a host of others.
“President Trump has all but declared war on refugees and immigrants,” Beshear said. “He’s eroding our Democracy, and that’s reckless. Real leaders don’t spread derision and division.”
WASHINGTON — President Trump signed two directives Friday rolling back key financial regulations of the Obama era, including restrictions on Wall Street banks and on financial advisers who sell clients expensive financial products with higher commissions, a White House adviser said.
The two executive actions don’t take effect immediately, but rather ask federal agencies to review options to cancel existing or proposed regulations.
Trump and aides said Dodd-Frank rulings aren’t working and are making legitimate investing activity more difficult than it should be.
“Today, we are signing core principles for regulating the United States financial system,” Trump said.
Rep. Ann Wagner, R-Mo., who joined Trump for an Oval Office signing ceremony, said, “we are returning to the American people, low- and middle-income investors, and retirees, their control of their own retirement savings. This is about Main Street.”
Democrats said Trump’s efforts will re-create the conditions that led to the 2008 financial meltdown.
“During the campaign President Trump said he would be tough on Wall Street,” said Sen. Bob Casey, D-Pa. “Then he filled his administration with billionaires and bankers and now he’s trying to roll back the rules put in place to prevent another economic crash like the one that occurred in 2008.”
Most Dodd-Frank changes would need to be made via legislation, and Democrats vowed to fight Trump’s plans.
“The president’s attempts to repeal Wall Street reform will be met with a Democratic firewall in Congress,” said Senate Minority Leader Charles Schumer, D-N.Y.
Trump signed the executive orders in a ceremony Friday afternoon. Previous executive orders have been far more sweeping than originally advertised. The two executive actions are:
► An executive order targeting the Dodd-Frank Wall Street Reform and Consumer Protection Act — and especially the so-called Volcker rule prohibiting banks from making speculative investments. The order would direct the secretary of the Treasury to review regulations on financial institutions and report back specific recommendations to the president.
Among the actions being considered are “personnel actions,” the White House official said. While he did not identify those actions, the most vulnerable financial regulator is Richard Cordray, the director of the Consumer Financial Protection Bureau. A federal appeals court ruled last year that the bureau’s structure was unconstitutional he exercises “massive, unchecked power” independent of the president. As a remedy, the court said, the president ought to be able to fire.
It could also include a dismantling of “orderly liquidation” authority for too-big-to-fail banks. Last week, the Justice Department’s Office of Legal Counsel released a 2010 legal opinion raising constitutional questions about the authority of bankruptcy courts to seize those banks, suggesting that the Trump administration was prepared to rely on the previously undisclosed legal advice.
The secretary of Labor could delay implementation of the rule, but repealing it would require starting the rulemaking process over from the beginning. That’s because the rule was already finalized last year, with a one-year grace period for compliance. President Barack Obama already vetoed an attempt by congressional Republicans to kill the rule outright.
The bull market enters the new year with a bit more spring in its step, but 2017 is not without its risks.
Stocks rang out 2016 with an unexpected late-year surge, rallying in the postelection Trump trade. The Dow rose 13.4 percent for the year, and the S&P 500 saw a 9.5 percent gain. Nasdaq was up 7.5 percent, but is about 2 percent off its all-time high.
While stocks had a strong year, the rally fizzled out in the final days, as investors made portfolio adjustments and pension funds reallocated money out of equities because of the strong gains.
Investors will get back to work fast when markets reopen for the new year on Tuesday. There is a deluge of economic reports, starting with ISM manufacturing data Tuesday; auto sales Wednesday and the important December employment report Friday.
The final trading week of the year was the worst week for the Dow and S&P 500 since Nov. 4, the week before the election. For the first time since then, the Dow, Nasdaq and S&P 500 all lost ground for three consecutive sessions.
The Dow flirted with 20,000 early in the four-day week but was down 0.8 percent to close at 19,770 Friday. The S&P 500 lost 1.1 percent to 2,239, and the Nasdaq was off 1.5 percent for the week at 5,383. As stocks sold off, buyers went into bonds and the 10-year yield ended the year at 2.44 percent, up from 2.27 percent in 2015.
“As for the short-term, I think you could still see some optimism for the new year,” said Paul Hickey, co-founder of Bespoke. “You could see some short-term upturn.”
But the soggy trading of the final days of 2016 could also see some follow-through if investors who want to position for 2017, held off to sell in the new year in anticipation of lower taxes on capital gains.
“Last year, we were anticipating a rough start to the year because of earnings, and then stability. This year we could see the opposite,” Hickey said. Stocks have rallied hard on expectations that President-elect Donald Trump will push through corporate tax reform, eliminate regulations and launch a fiscal spending program, but Hickey said the market will start to trade on his ability to deliver and the timing.
Strategists mostly expect single-digit gains for the market, and many forecasts are between 2,300 and 2,400 for the S&P 500.
Citigroup’s Tobias Levkovich says he has become more bullish after the election, because of what he sees as a better environment for business, and therefore stocks, in 2017. Corporate tax cuts should help boost earnings, which he already sees growing by 6 or 7 percent for the S&P 500 because the drag from energy has ended.
Levkovich bumped up his S&P forecast to 2,425 for 2017, but he also says the market may have borrowed some of 2017’s gains in the run up to the new year.
“In the near term, I’m a buyer on any weakness, because I still see the market going higher. I don’t think anybody’s really euphoric. They worry about trade issues with Trump. They worry about geopolitical dynamics,” and whether Trump appears to be too close to Russian President Vladimir Putin, said Levkovich.
“There are things we’re going to have to worry about. What’s the timing of the legislation? What happens to the dollar? Does the economy slow in Europe ahead of the French election?” said Levkovich, who is chief U.S. equities strategist. But overall, the improving economy and business climate should be supportive for stocks.
“There’s very little question that a reduced regulatory backdrop with reduced taxes should encourage corporate animal spirits. The two things businesses are concerned by are high taxation and high regulation,” said Levkovich.
Economic data in the coming week will be watched but is unlikely to influence the market as much as some other events, unless there are big surprises either way.
“It’s going to be all about what’s going on with Trump. Does this turn into a real fight with McCain and others going after Trump?” said Art Cashin, director of floor operations at UBS.
The saga is not affecting the market, but traders are watching it closely as an early test case for President-elect Trump.
“The Fed minutes will be somewhat important but they’re changing the voters,” said Cashin. The minutes are from the December meeting where the Federal Open Market Committee voted to raise rates for the second time since the financial crisis.
There are several Fed speakers next week, with Chicago Fed President Charles Evans, Richmond Fed President Jeffrey Lacker and Dallas Fed President Rob Kaplan all speaking on Friday.
The big economic release will be the December jobs report, expected to show 170,000 nonfarm payrolls and a slightly higher unemployment rate of 4.7 percent, according to Thomson Reuters.
“The jobs number almost doesn’t count unless there’s a major surprise. The Fed is as curious as anybody as to what’s in Trump’s program and how fast does he move on it,” said Cashin.
Cashin expects new money to come into the market for the new year.
Hickey said there’s some apprehension that January will be negative since the past three Januarys have been weak for stocks. But he said he does not expect January to be down, and the old adage “so goes January, so goes the market” has proven itself to no longer relevant. The S&P was down 5.1 percent last January and the market bottomed hard in February.
Oil was a big story in 2016, bottoming in February below $30, and finishing the year with a 45 percent gain. West Texas Intermediate crude futures for February ended the year at $53.72 per barrel.
In a campaign commercial that ran just before the election, Donald J. Trump’s voice boomed over a series of Wall Street images. He described “a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth, and put that money into the pockets of a handful of large corporations.”
The New York Stock Exchange, the hedge fund billionaire George Soros and the chief executive of the investment bank Goldman Sachs flashed across the screen.
Now Mr. Trump has named a former Goldman executive and co-investor with Mr. Soros to spearhead his economic policy.
With Wednesday’s nomination of Steven Mnuchin, a Goldman trader turned hedge fund manager and Hollywood financier, to be Treasury secretary, a new economic leadership is taking shape in Washington.
Mr. Mnuchin will join Wilbur L. Ross Jr., a billionaire investor in distressed assets, who has been chosen to run the Commerce Department, and Todd Ricketts, owner of the Chicago Cubs, who has been picked to be deputy commerce secretary. All are superwealthy and to be overseen by the first billionaire president in United States history.
That two investors — Mr. Mnuchin and Mr. Ross — will occupy two major economic positions in the new administration is the most powerful signal yet that Mr. Trump plans to emphasize policies friendly to Wall Street, like tax cuts and a relaxation of regulation, in the early days of his administration.
While that approach has been cheered by investors (the stocks of Bank of America, Goldman Sachs and Morgan Stanley have been on a tear since the election), it stands in stark contrast to the populist campaign that Mr. Trump ran and the support he received from working-class voters across the country.
Anthony Scaramucci, a hedge fund executive and member of the Trump transition team, insisted on Wednesday that appointing wealthy investors did not contradict the campaign’s populist message.
“The working-class people of the United States, they need a break,” Mr. Scaramucci said. “And we need to switch them from going from the working class into the working poor into what I call the aspirational working class, which my dad was a member of.”
Still, Democrats were quick to attack the latest nomination.
“Steve Mnuchin is just another Wall Street insider,” Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts said in a joint statement. “That is not the type of change that Donald Trump promised to bring to Washington — that is hypocrisy at its worst.”
So far, none of the nominees who will be shaping economic policy have any significant experience in government.
Mr. Mnuchin, 53, and Mr. Ross, 79, are both familiar with buying distressed properties and selling for a profit. But they are political neophytes with scant experience in managing large organizations. They will oversee two government agencies that together employ about 130,000 people around the world.
In the case of Mr. Mnuchin at Treasury, his experience as a principal investor who made large sums of money through high-risk, high-return wagers suggests that he will look critically at the thicket of regulations that now constrain the risk-taking activities of investment banks.
That could mean a reassessment of what has come to be known as the Volcker Rule, part of the Dodd-Frank financial overhaul that followed the 2008 financial crisis. The rule forbids banks to make certain speculative investments with their own capital.
“I would say the No. 1 problem with the Volcker Rule is it’s too complicated and people don’t know how to interpret it,” Mr. Mnuchin said in an interview with CNBC on Wednesday. “So we’re going to look at what to do with it as we are with all of Dodd-Frank. The No. 1 priority is going to be to make sure that banks lend.”
In the interview, Mr. Mnuchin also said he would look to cutting corporate tax rates as a way to increase economic growth. And he said the wealthy would not see a big tax cut.
“Any reductions we have in upper-income taxes will be offset by less deductions so that there will be no absolute tax cut for the upper class,” Mr. Mnuchin said in the interview. “There will be a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it.”
There is a Washington tradition of presidents calling on a Goldman Sachs luminary to take the reins of the economy, including the Democrat Robert E. Rubin in 1995 and Henry M. Paulson Jr., a Republican, in 2006.
Mr. Mnuchin’s Goldman pedigree is as good as it gets, given that his father, Robert, was a pioneer in stock trading who spent 35 years at the firm.
While the Goldman brand may have initially attracted Mr. Trump, for the broader financial community it is Mr. Mnuchin’s track record at hedge and private equity funds, which is where the real money is made on Wall Street these days, that makes him appealing.
“Mnuchin as Treasury secretary is somebody who can speak to bankers — Jamie Dimon, Lloyd Blankfein, James Gorman and Brian Moynihan. He can speak their language,” said Gary Kaminsky, a former vice chairman at Morgan Stanley, referring to the chief executives of JPMorgan Chase, Goldman, Morgan Stanley and Bank of America. “He comes from a trading desk, and that’s something that is very strong,” Mr. Kaminsky, who has attended fund-raisers for Mr. Trump, added.
While there is little doubt that Mr. Mnuchin can speak the language of Wall Street, he has had little experience running large, complex bureaucracies. Mr. Rubin and Mr. Paulson had ascended to the top at Goldman, and had many years of experience managing people and organizations under their belt.
Mr. Mnuchin did assume a leading role in the restructuring and reinventing of IndyMac, now known as OneWest, a California mortgage giant that collapsed in 2008. He and partners acquired the firm and later made billions.
After he moved from New York to the West Coast, Mr. Mnuchin was targeted by protesters who claimed that the bank was too quick to foreclose on struggling homeowners. Last year the bank was sold to the CIT Group, a small-business lender run at the time by another Goldman Sachs alumnus, John A. Thain.
In a statement announcing his economic appointments, Mr. Trump highlighted the deal. “He purchased IndyMac Bank for $1.6 billion and ran it very professionally, selling it for $3.4 billion plus a return of capital,” he said of Mr. Mnuchin. “That’s the kind of people I want in my administration representing our country.”
Mr. Mnuchin has faced other controversies. In 2010, he and his brother, Alan, were sued over their mother’s early investment with Bernard L. Madoff, an investor who was convicted of running a Ponzi scheme. The lawsuit, filed by a trustee for Madoff victims, alleged that $3.2 million of the money Mr. Mnuchin withdrew from his mother’s account shortly after she died belonged to other victims. The lawsuit was dropped last year because of a time limit.
Hollywood has been another reinvention for Mr. Mnuchin.
In 2006, he and a partner, Chip Seelig, struck a deal through their company Dune Entertainment to invest $325 million in 28 movies produced by 20th Century Fox. It was a successful partnership; Fox delivered hits (made in part with Dune’s money) like “Avatar,” which took in $2.8 billion worldwide in 2009.
After breaking with Mr. Seelig in 2012, Mr. Mnuchin teamed up with a company called RatPac, owned by the rowdy filmmaker Brett Ratner and the Australian billionaire James Packer. Mr. Ratner was then notorious in Hollywood; he resigned as a producer of the Academy Awards in 2011 after using an anti-gay slur at a public event and making frank remarks about his sex life on Howard Stern’s radio show. (He apologized.) But together the three men formed a vehicle to invest $450 million in an extensive array of Warner Bros. movies.
Some have been major hits, like “Gravity,” which took in $723.2 million. But there have also been money losers, including “Pan” and “In the Heart of the Sea.”
Still, Mr. Mnuchin has clearly enjoyed a Hollywood lifestyle, whether attending celebrity-filled parties at the Hôtel du Cap-Eden-Roc during the Cannes Film Festival or going in with a movie industry friend to buy a Dassault Falcon 50 jet (since sold). He can currently be seen in a cameo — playing a Merrill Lynch executive — in Warren Beatty’s new movie “Rules Don’t Apply.”
Beyond the entertainment industry, there other similarities between Mr. Trump and Mr. Mnuchin. They are both twice divorced, and their third partners are decidedly younger. (Mr. Mnuchin’s fiancée is Louise Linton, a 34-year-old actress from Scotland.) They also both have a taste for landmark Manhattan real estate: Trump Tower for the president-elect and 740 Park Avenue for Mr. Mnuchin.
But there are differences, too. Despite his Hollywood appetites, Mr. Mnuchin is described by people who know him as slightly awkward and not one to command a room. Friends of the two men describe them more as social and professional acquaintances than close friends.
The names of flashier prospects had been floated as possible candidates for Treasury, according to a fund manager close to the president-elect’s economic brain trust. Among them: Henry Kravis of Kohlberg Kravis Roberts & Company, Jonathan Gray of Blackstone, Jamie Dimon, Mitt Romney, and Thomas J. Barrack Jr. of Colony Capital, a Los Angeles-based real estate investor who has been close to Mr. Trump for decades.
Asian shares rose on Thursday, taking early cues from Wall Street gains overnight, as receding worries of near-term U.S. interest rate hikes continued to buoy risk sentiment.
The dollar hovered near seven-week lows versus the euro as cautious comments from Federal Reserve Chair Janet Yellen earlier in the week on monetary tightening continued to resonate. [FRX/]
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.4 percent. Australian stocks added 1.3 percent. Japan’s Nikkei .N225 rose 0.7 percent.
Investor risk appetite has increased since Fed Chair Yellen said on Tuesday that the U.S. central bank should proceed cautiously as it looks to hike rates, pushing back against some colleagues who have suggested another move may be just around the corner.
Yellen’s views were echoed by Chicago Fed President Charles Evans, who said on Wednesday there was a high hurdle to raising rates in April, given low inflation.
Following such cautious views from top Fed officials, the Dow .DJI climbed 0.5 percent and the S&P 500 .SPX rose 0.4 percent overnight. The CBOE Market Volatility Index .VIX, Wall Street’s “fear gauge”, ended down 1.9 percent at its lowest level since August. [.N]
“Global markets are likely to be dominated by month- and quarter-end flows today as markets await tomorrow’s U.S. Institute of Supply Management data, non-farm payrolls and global purchasing managers’ indexes, particularly that of China,” wrote strategists at ANZ.
In currencies, the euro was steady at $1.1335 EUR=, not far from Wednesday’s seven-week peak of $1.1365. The dollar dipped 0.1 percent to 112.36 yen JPY=.
The greenback’s recent weakness has been a boon to the Australian and New Zealand dollars, which both soared to nine-month highs.
Crude oil prices dipped after U.S. government data showed crude inventories were again at all-time peaks despite strong refinery runs.
U.S. crude CLc1 was down 0.7 percent at $38.06 a barrel.
Oil prices, which fell to 12-year lows earlier this year, have risen about 50 percent since mid-February after major producers floated the idea of freezing production at January’s highs. Some analysts say the rally has breached fundamentals and crude could trade lower. [O/R]
NEW YORK — Wall Street is getting ready to go nuclear on Donald Trump.
Terrified that the reality TV star could run away with the Republican nomination and bring his brand of anti-immigrant, protectionist populism to the White House, some top financiers are writing big checks to fund an effort to deny Trump a majority of delegates to the GOP convention.
The effort is centered on the recently formed Our Principles PAC, the latest big-money group airing anti-Trump ads, which is run by GOP strategist Katie Packer, deputy campaign manager for Mitt Romney in 2012.
The group, initially funded by $3 million from Marlene Ricketts, wife of billionaire T.D. Ameritrade founder Joe Ricketts, wants to saturate the expensive Florida airwaves ahead of the state’s March 15 primary with hopes of denying Trump a victory that could crush the hopes of home state Sen. Marco Rubio.
A conference call on Tuesday to solicit donors for the group included Paul Singer, billionaire founder of hedge fund Elliott Management; Hewlett Packard President and CEO Meg Whitman; and Chicago Cubs co-owner Todd Ricketts, one of Joe and Marlene Ricketts’ three sons. Wealthy Illinois businessman Richard Uihlein is also expected to help fund the effort. Jim Francis, a big GOP donor and bundler from Texas, was also on the phone call on Tuesday.
One person close to the Our Principles PAC said money will not be an issue.
This person said Singer, who is worth close to $2 billion, is fully dedicated to making sure the group has all the funds it needs to inundate the airwaves in Florida and other states viewed as not entirely friendly to Trump, a group that includes Illinois, Missouri, Arizona, Wisconsin and other states in the Northeast and West. Ohio could join the list if Trump moves ahead of the state’s governor, John Kasich, in the polls.
“The money is not going to be a problem. We will raise what we need to do what we need to do,” the person close to the new anti-Trump PAC said. “Yes, there are people who are skeptical, but there are just as many ready to write big checks. The question is only whether Trump truly is really Teflon.”
The theory, this person said, is that voters are still largely unaware of the full case against Trump. “We have not seen how he holds up to real sustained attacks over the KKK and David Duke stuff, over Trump University, over Trump Mortgage. People don’t really know about that stuff. We are about to find out what happens when they find out about it.”
Hope Hicks, a spokeswoman for Trump, dismissed the latest effort. “This is yet another attempt by the establishment elites and dark money that control the weak politicians to maintain control of our broken and corrupt system. Mr. Trump will continue to stand for the people and the issues they care about,” she said.
Packer said in an interview that the effort is focused on denying Trump the 1,237 delegates needed to win the nomination outright. “This is a delegate battle; it’s not going to be like other years, and 71 percent of the delegates have not been awarded,” she said. “There is just a huge chasm between Trump and the other candidates, and there is going to be no coalescing around him. It will go all the way to Cleveland,” site of the GOP convention in July.
Packer said that, of the hundreds of millions spent on GOP ads in 2016 thus far, only $9 million has been spent opposing Trump. “In 2012, we spent $10 million against Newt Gingrich in Florida alone.”
The pitch to Wall Street titans and other CEOs is that a President Trump would be disastrous for markets and the economy. Many economists say that if the U.S. were to deport 11 million undocumented immigrants in a single year, the immediate hit to gross domestic product would lead to a depression. And slapping massive tariffs on goods from Mexico and China could dramatically increase prices for U.S. consumers and create destabilizing trade wars. “The most important thing about Trump is, he is completely unpredictable and volatile, and the one thing business needs is predictability,” Packer said.
But prosecuting that case will take tens of millions of dollars spread across multiple states.
And many Wall Street donors are already burned out after pumping over $100 million to Jeb Bush and his Right to Rise super PAC with nothing to show for it. Wall Street’s support is also splintered among candidates at the moment. Singer is backing Rubio. Financiers Stanley Druckenmiller and Ken Langone are backing Kasich. And many senior executives say trying to stop Trump now is a foolish crusade that will wind up burning cash with nothing to show for it.
“My personal view is that Trump is going to get the nomination anyway and there is nothing that can be done about it now,” the chief executive of a Wall Street bank who once backed Bush said in an interview on Wednesday after turning down a pitch to contribute to a new anti-Trump super PAC. “I never believed Trump could get anywhere near where he is right now. I thought he was ridiculous and people wouldn’t really vote for him. All of that was wrong.”
Another top Wall Street executive who raised large amounts for Bush and has so far declined to help fund the new PAC dedicated to stopping Trump said that if there were a single alternative in the race things might be different. But as it is, this executive said, there is virtually no way to keep Trump from the nomination.
“I think Trump is going to win, and my concern is that anything we do now is just going to help Hillary Clinton win the general election,” the executive said. He added that the theory that Rubio or someone else could take the nomination in a brokered convention borders on the absurd.
“Even if Trump goes in with less than a majority of the delegates, say 900 delegates, he will be way ahead, and if you take it away from him, the 40 percent or more of voters who supported him would go completely ballistic and guarantee that Hillary wins.”
The one thing most of Wall Street agrees on at this point is that Trump’s grasp of economic policy is weak at best. And should he manage to defeat likely Democratic nominee Clinton in the fall, already turbulent markets could go completely haywire.
“[Trump] has a kindergarten view of economics. The man says China is manipulating currency. China is in the biggest currency run in history, they’re losing $100 billion a month,” Druckenmiller said on CNBC’s “Squawk Box” on Wednesday morning. “He doesn’t know what he is talking about. The stuff that comes out his mouth just astonishes me.”
Other Wall Street analysts say the biggest risk from Trump is that no one really knows what his core beliefs really are. And it is not clear what kind of people he might appoint to critical jobs in his administration. Trump thus far has floated only billionaire activist investor Carl Icahn as a possible economic adviser in his administration.
“The biggest fear of a Trump presidency is the only person we know would be a part of the administration at this point is Donald Trump,” said Sean West, deputy CEO and head of the United States practice at advisory firm Eurasia Group. “And even three months into the primary season, we don’t have any feel for what Trump actually stands for, only for what he is willing to say to win. I don’t believe Trump is really comfortable cutting back trade with other countries, but the way he delivers his message could certainly trigger retaliation from other countries.”
While the view that Trump is a fraud who has no idea what he is talking about is widespread on Wall Street, few are convinced there is any real path to deprive him of the nomination at this point.
That leaves many Wall Street Republicans with the same conundrum as naional party leaders: Figure out a way to make peace with Trump, pray for an independent bid by former New York Mayor Michael Bloomberg or quietly hope Clinton wins the general election in November.
Clinton has many supporters on Wall Street — something that has complicated her primary campaign against Vermont Sen. Bernie Sanders — and plenty of Republicans who don’t like her would still prefer her to Trump. “I could never support Hillary,” the Wall Street executive who raised money for Bush said. “But plenty of my friends will just hold their nose and vote for her.”
Even the person close to the new Wall Street-funded effort to stop Trump says the result of their efforts could wind up being nil. “Trump is winning now, but he is not running away with it,” the person said. “We will see if we are able to slow him down.”