Markets are making predictions based on US President-elect Trump’s promised policies, but is that wise?
Taking their cues from the Donald Trump’s promised inflationary policies, which have practically ensured a December Fed rate hike, investors have gone on a huge selloff of US treasuries. Stocks have benefited from the rout, pushing up all major US indices to record highs and buoying the S&P/TSX composite index for good measure.
While markets are riding high at the moment, it remains to be seen whether expectations will translate into reality, as noted in an article on the Financial Post. “Trump isn’t president yet,” wrote columnist Joe Chidley. “In the absence of details on his fiscal stimulus plans… it’s impossible to say for sure that spending-fueled inflation is a done deal.”
“Trump has already proven to be exceptionally unpredictable,” he continued, noting flip-flopping on prosecuting Hillary Clinton, changing libel laws and upping the use of torture. “[T]here may be little reason to expect a steady hand on economic matters, either.”
However, Chidley pointed out that the CBOE volatility index, which indicates volatility in the S&P 500, has fallen since Nov. 8 despite rising markets, implying that the bucking bull market won’t stop anytime soon.
The current rally is not even, however, as some sectors have come out ahead of others. Chidley observed the US financial industry enjoying gains, with price-to-book ratios of JPMorgan Chase and Wells Fargo exceeding 1.0 and Bank of America and Citigroup still below, suggesting a window for upside growth.
Industrials have also been successful due to positive expectations of higher rates and infrastructure and defense spending. Heavy equipment company Caterpillar and aerospace and defense multinational General Dynamics have both gone up by more than 10% since Nov. 8, while General Electric and United Parcel Service have popped up by only 6.5% and a little more than 3%, respectively.
Noting a rise of only 3.7% in the IT-heavy Nasdaq, Chidley regards the outlook for the sector as a toss-up, “as it could be heavily exposed to his anti-immigration and corporate tax reform ideas.”
“Of course, all of this handicapping could prove itself irrelevant very soon. Markets digested Trump’s victory and surged forward quickly; they could just as quickly turn tail and run,” he said. “With an unpredictable neophyte at the helm, weirder things could happen.”
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While markets are riding high at the moment, it remains to be seen whether expectations will translate into reality, as noted in an article on the Financial Post. “Trump isn’t president yet,” wrote columnist Joe Chidley. “In the absence of details on his fiscal stimulus plans… it’s impossible to say for sure that spending-fueled inflation is a done deal.”
“Trump has already proven to be exceptionally unpredictable,” he continued, noting flip-flopping on prosecuting Hillary Clinton, changing libel laws and upping the use of torture. “[T]here may be little reason to expect a steady hand on economic matters, either.”
However, Chidley pointed out that the CBOE volatility index, which indicates volatility in the S&P 500, has fallen since Nov. 8 despite rising markets, implying that the bucking bull market won’t stop anytime soon.
The current rally is not even, however, as some sectors have come out ahead of others. Chidley observed the US financial industry enjoying gains, with price-to-book ratios of JPMorgan Chase and Wells Fargo exceeding 1.0 and Bank of America and Citigroup still below, suggesting a window for upside growth.
Industrials have also been successful due to positive expectations of higher rates and infrastructure and defense spending. Heavy equipment company Caterpillar and aerospace and defense multinational General Dynamics have both gone up by more than 10% since Nov. 8, while General Electric and United Parcel Service have popped up by only 6.5% and a little more than 3%, respectively.
Noting a rise of only 3.7% in the IT-heavy Nasdaq, Chidley regards the outlook for the sector as a toss-up, “as it could be heavily exposed to his anti-immigration and corporate tax reform ideas.”
“Of course, all of this handicapping could prove itself irrelevant very soon. Markets digested Trump’s victory and surged forward quickly; they could just as quickly turn tail and run,” he said. “With an unpredictable neophyte at the helm, weirder things could happen.”
Related stories:
How should advisors react to the unpredictable energy market?
Massive bonds-to-equities rotation still not in the cards, say experts
