News Analysis: Is Trump rally sustainable after Dow hits 21,000?

U.S. equities surged and closed at record highs earlier this week, with the Dow Jones Industrial Average topping 21,000 for the first time, as Wall Street mainly cheered over President Donald Trump's well-received major speech to both houses of Congress on Tuesday.

Investor euphoria has been ignited by Trump's economic plans, which he described in his first address to a joint session of Congress. He outlined plans for a one-trillion-U.S.-dollar infrastructure investment, health care reform, immigration reform and tax relief for businesses and the middle class.

"The markets are trading higher on the softer approach by the president," Peter Cardillo, chief market economist at First Standard Financial wrote in a note.

It is widely thought that Trump's address to the Congress was fairly conventional and delivered a desire to move past the turmoil and partisan division rampant in his first month in the White House.

Some analysts believed that the absence of protectionist comments as well as overall tone that was perceived as "presidential" instilled confidence among investors, sending equity markets higher.

U.S. stocks have posted sharp gains since Trump won the presidential election last November, with all three major indices soaring over 11 percent, as analysts said hopes for tax cuts and a rollback on regulations fueled the recent rally.

It only took 24 trading days for the Dow to go from 20,000 to 21,000.

"I think equities will do well this year, it has to be a volatile year though," Kate Moore, Chief Equity Strategist for BlackRock, told Xinhua.

Yet, however strong the speech was on style and however bullish the reaction has been among certain risk markets, President Trump's speech did not significantly change the stubborn facts about policymaking in Washington, said Libby Cantrill, PIMCO's head of public policy.

"The two priority issues for President Trump and congressional Republicans in 2017 -- healthcare overhaul and reform of the tax code -- are two of the most complex and time-consuming issues Congress can tackle," Cantrill added.

Meanwhile, some investors believed the recent rally is not just about Trump but better economic data and corporate earnings helping to support the markets.

U.S. manufacturing activity in February accelerated at the fastest pace since August 2014, a sign of growing momentum for the economy.

The Non-Manufacturing Index, which measures activity in the U.S. service sector, registered 57.6 percent in February, beating market expectations of 56.5, the Institute for Supply Management (ISM) said in its monthly survey Friday.

U.S. personal income increased 63 billion dollars, or 0.4 percent, in January, beating market consensus of 0.3 percent, said the Commerce Department earlier this week. Personal income increased 3.6 percent in 2016, compared with an increase of 4.4 percent in 2015.

Traders now shifted their focus to the U.S. central bank's possible rate hike, which will put whether the Trump rally is sustainable into question.

"The dollar and yields are moving higher as next theme of the market, the 'Fed' overrides the Trump effect," Cardillo said.

Concerns about a March rate hike have risen in recent weeks after several Fed officials made some hawkish comments on rate hikes.

U.S. Federal Reserve chairwoman Janet Yellen on Friday signaled that an interest rate hike in this month's monetary policy will likely be appropriate if the economy progresses in line with officials' expectation.

"At our meeting later this month, the (Federal Open Market) Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," said Yellen in a speech at the Executives' Club of Chicago.

The Fed is scheduled to hold its next monetary policy meeting on March 14-15.

Market expectations for a March rate hike spiked around 80 percent, according to the CME Group's FedWatch tool.

"My sense is she believes the FOMC is likely to hike in two weeks, but she has not made up her own mind definitively and will not until she is in the meeting," said Chris Low, chief economist at FTN.

Other Fed policymakers, including New York Fed President William Dudley and Fed governor Lael Brainard, said recently that it would be appropriate for the Fed to move rates soon, as the economy is close to full employment and the two percent inflation target.

Economists also paid attention on whether "animal spirits" have now carried stocks beyond what's justified.

"There's no question that animal spirits have been unleashed a bit post the election," Dudley told CNN on Tuesday, referring to human emotion as a lead driver of consumer confidence. "The stock market is up a lot."

"'Animal spirits' have been stirring since the election. So far, the hard data has not followed. Increasing confidence and plans of expansion will determine the growth story in 2017 only if it spurs real economic activity," said Jay Morelock, an economist at FTN Financial, in a note. Endi