This stock-market rally isn’t all about Trump’s newfound ‘tone’

That seems to be one takeaway from the surge in stocks and other assets in the global “risk-on” rally that followed Donald Trump’s address to a joint session of Congress Tuesday night. After all, the speech was notably short on details. But the sober tone was hailed as more befitting the office and roundly cited as a factor in a global rally by equities that saw the DJIA, +1.46%  top 21,000 for the first time ever as the S&P 500 SPX, +1.37%  and other major Wall Street indexes set new records.

See: Trump shifts tone but not policies in speech to Congress

Some investors and analysts, however, question just how big of a factor policy proposals have been in driving a record-busting U.S. equity rally.

Read: Dow tops 21,000—on pace for fastest milestone in history

“There weren’t too many surprises regarding the programs Trump wants to implement, but the specific details and timeline are still scarce, adding to the argument that the market maybe isn’t as policy-focused as some (even we) have assumed,” wrote Andrew Adams, market strategist at Raymond James, in a Wednesday note.

Adams said that while a “business-friendly Washington certainly helps,” the firm had argued before the election that overall economic conditions were good enough to spark improving earnings numbers and higher stock prices. That means the current run-up could be “just an inevitable, reactionary breakout to what was a very difficult last couple of years,” coming off a largely sideways 2014 to 2016 period that produced a largely technical base on which to build.

Meanwhile, stock-market investors are shrugging off or even embracing a more aggressive sounding Federal Reserve. Remarks by New York Fed President William Dudley saw market expectations for a March rate rise shoot toward 70% from less than 50-50.

Rising expectations for a March hike were credited for a sharp rise by the U.S. dollar against major rivals, pushing the ICE U.S. Dollar Index DXY, +0.13% a measure of the greenback against a basket of six major rivals, to its highest level since Jan. 10. Currency analysts at Société Générale titled their daily market note, “Dudley 1, Trump 0.” As would be expected, gold GCJ7, -0.33%  weakened and short-term Treasury yields jumped,

Stocks, of course, have managed to hit a string of records following the Fed’s December rate rise. The question is whether the prospect of a more aggressive Fed is seen as confirmation the U.S. and global economy and inflation are picking up some steam.

The overall investor exuberance means that financial stocks, which stand to benefit from higher rates, have managed to receive a boost while other sectors avoid damage, noted Jasper Lawler, senior market analyst at London Capital Group.

See: Financial ETF hits 9-year high on rate hike hopes

Meanwhile, the earnings outlook is improving and inflation does appear to be picking up.

If investors remember that tax cuts, infrastructure spending, regulatory rollbacks and other measures won’t all arrive immediately or at once, “it may mean there won’t be as much disappointment as expected if one or more of the policies gets delayed, Adams said.

Meanwhile, analysts haven’t significantly raised earnings estimates for 2017 and 2018, yet, which could provide bulls with more fodder down the road, he said.

And as long as the economy and earnings continue to improve, “there’s a good chance this bull market can sustain itself as it awaits perhaps even more fuel for the fire,” he said.

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