The performance of the US equity market through January was quite impressive considering the erratic nature of the Trump Presidency so far. While other global markets saw fit to take a little risk off the table – with bond yields easing and the US dollar falling – the S&P 500 added another lazy 1.8%.
All this bodes well for the market considering that Trump’s first few weeks in office have been spent focused on the promises made to his “rust belt” base, rather than on the needs of financial markets or the business community. So far we’ve had reaffirmation of his intent to build a wall along the Mexican border, even though it remains very unclear who will pay for it. Trump’s people have also accused China and Germany of maintaining artificially weak currencies, which has helped keep a lid on $US strength. There also his threats to slap tariffs on China and/or tax companies that build factories offshore. And in the biggest shock, we’ve had broad based travels bans form some countries, that’s now being hotly contested in the courts.
All up, despite all the optimism that immediately infected markets following Trump’s gracious victory speech on election night last November, it turns out that Trump remains as outspoken and unpredictable as he was during his long divisive campaign for the White House. Do doubt about it: we’re getting bad Trump, or the same Trump we had during the election campaigns.
He simply can’t or won’t change his spots.
For investors, this provides both good and bad news. The bad news is plain to see – there’s still a very real risk he could eventually ignite a tit-for-tat trade war with China, or even Europe and Japan. The less bad news is that his attacks on immigration – and, let’s say it, Muslims – and unpalatable to watch, but don’t seem likely to derail investor sentiment or the economy itself all that much.
But the really good news is that, for all his belligerence, Trump is at least displaying a willingness to press ahead and act on the various policies he has promised. He’s divisive, but he’s also decisive.
That means that he should soon also turn his attention to his more market friendly policies, such as increased infrastructure spending, and reduced taxes and regulation. Given the Republicans control both houses of Congress, and there’s already a lot of areas of disagreement between it and the President over immigrations and trade, my hunch is that it will be only too willing to enact his economic measures. After all Trump remains popular with the key rump of republican voters, and those in Congress will be want to be seen agreeing with him on at least some measures.
All up, therefore, my sense is that despite the fact we’re ending up with “Bad Trump” after all, investors need to cut through the noise and perhaps their own distaste for this politics and focus on the fact that many of his economic measures will be market positive.
Hold your nose and buy.