Trumpenomics and the Surge in the Market

trump-dow-rise
Trump’s Dow performance marks the fifth-best gain in history in percentage terms (in the first 30days), according to Dow Jones data, and the third best such performance for a first-term president
Since the election, we have seen record high appreciation across all major stock indexes, with the Dow Jones Industrial Average and the S&P 500 Index pushing out record-setting gains that have extended on the back of investor confidence over President Trump’s proposed economic policies. The promise of lower taxes, increased infrastructure spending and decreased regulatory oversight, has proved to be positive signs for investors, looking to equities in both the Financial Sector and Industrial sector to benefit the most from President Trump’s plan.

As it stands, the sentiment on Wall Street seems to point to a continuation of the prevailing uptrend, despite minor correction that might occur. However, many on the Street question the strength of this existing trend, pointing to the moves in the market as being solely sentiment driven and unsubstantiated by a meaningful change. After all, Washington hasn’t enjoyed the smoothest of transitions, with members of the Trump administration resigning as was the case with Michael Flynn, or even stepping down before confirmation hearings as was with Andrew Puzder.

This abnormality or tendency for volatility appears somewhat frightening to investors who believe that the market is due for a huge swing south. Nick Colas, chief market strategist at Convergex, agrees with this notion stating that “I hear lots of skepticism about the 2017 ‘Trump rally.’ Valuations are stretched. U.S. equity markets are putting too much faith in an as-yet-unproven presidential administration. Stocks are whistling past the proverbial graveyard.”

But according to David Rosenberg, senior economist, and strategist at Gluskin Sheff, the current market acts as Teflon having become relatively immune to the bumps of the Trump administration. Investors don’t seem to mind the issues coming out of Washington, nor the sentiment of the masses regarding controversial issues such as immigration or Russian ties. As Paul Zemsky, chief investment officer at Voya investment management stated, “Investors are a little bit numb to the tweets and static coming out of Washington and are focusing on the real economic numbers, which are probably more accurate than all of the noise and all of the partisan positioning.” As such, the minor detours taken by the Trump administration, even his rather blasphemous language are all taken into context of the situation.

Even small business owners have joined the Trump train, in hopes that the market with rally and continue to grow alongside the economy. This in turn, if achieved through the economic policies of the President, will allow more money back into the hands of Americans. Although, this reality is contingent on the effectiveness of the Trump administration, as they have been met with serious partisan gridlock at the hands of Democrats who have openly criticized the president and his policies.

Having said that, though the Trump administration has been generally uptrending in the market, they have had their share of backlash when they sought to deter from issues that are of concern to the market, those being taxes, regulations and fiscal stimulus. As noted in an earlier post,  when Trump veered off his subject matter messaging as evident when he issued his restrictions on immigrants from seven countries, the market responded with a small sell off.

This, however, has been irrelevant for traders on Wall Street, as they are interested in capturing short-term, volatile moves in equity/commodity prices. As markets rise, long trading positions seek to profit from continued sentiment, while those harboring short positions have continued to get burned as markets show little signs of a major contraction.

Yet in spite of this, some asset manager have remained vehement in their position relative to the market, with Colas noting that “If you disagree with the underpinnings of the rally, that’s fine. Pick your objections, find the catalysts that will make the market see things your way, and then wait. Your time will come. It just isn’t tomorrow.” Though, according to current market sentiment, it would appear that the time right now is BUY, BUY, BUY, with little to no sign of slowing down.

trump-sprise
Trump’s S&P performance marks the firth-best gain in history in percentage terms (in the first 30 days), similar in fashion to the Dow data

 

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