U.S. and European stocks are rallying this week after the preliminary round of the French presidential elections narrowed the field to two candidates: centrist Emmanuel Macron and right-wing populist Marine Le Pen. Investors seem confident that Macron will secure the runoff victory on May 7, and investors are now turning their attention to U.S. President Donald Trump’s tax reform plan.
A Macron victory in France would put to rest fears that France will follow in the United Kingdom’s footsteps and leave the eurozone, a move which would have threatened the European Union’s survival.
“The risk to the EU and the euro from the French election have diminished somewhat and forward-looking investors are pricing in Macron’s victory in the May 7 runoff,” RSM chief economist Joe Brusuelas says.
The Standard & Poor’s 500 index started off the week with a 200-point gain on Monday, with European banks Deutsche Bank (ticker: DB) and Societe Generale each up more than 10 percent.
“I think it’s more a risk-friendly environment for the time being,” Deutsche Bank analyst Alan Ruskin says. “There are other concerns out there, but the European story was important.”
U.S. banks rallied on hopes the Trump administration’s planned tax reform announcement on Wednesday will be more good news. Bank stocks had struggled in recent weeks on worries that Trump’s failure on health care reform would delay or impede his progress on tax reform, but it seems the administration is determined to move forward.
Despite the tailwinds for U.S. stocks this week, some investors remain cautious.
“Crude oil remains below $50, and the Treasury yield curve [a classic indicator of economic optimism] is not steepening on this news,” Miller Tabak equity strategist Matt Maley writes. “And this is…
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