A portfolio manager explains why he thinks speculators pinning their hopes on Trump may go bust
Investors in the financial markets know that risk is related to uncertainty; the less is known about a particular factor, the more risk is associated with it. However, while US President Donald Trump remains unreadable days after his inauguration, one analyst notes a lack of concern in the markets.
“The world’s largest economy is now in the hands of a wild card, someone who is calling for material change but leaving everyone speculating on what that may look like,” said TriVest Wealth Counsel portfolio manager and OCIO Martin Pelletier. “At the same time, there is an air of complacency in the equity markets, where investors are not just hoping for the best outcome, but counting on it.”
This is reflected in sell-side reports that dismiss potential NAFTA risks, which could particularly hurt the energy sector. “As a result, certain stocks and sectors are discounting a zero impact in their valuations — something we view as quite dangerous when it comes to the forward risk versus reward outlook,” he said.
While Pelletier can only say that Trump “may well have more of a negative impact than a positive one on Canada’s markets and its economy,” he notes a selective optimism among investors who put on blinders and “choose to chase 2016 returns hoping they will repeat.”
Obstacles to a repeat include a Canadian federal government that is untested in dealing with trade challenges and policy changes; increased taxes on income, carbon, and possibly healthcare benefits; and the likelihood of more competitive US corporate taxes under Trump.
“That said, it’s not all roses south of the border as the American market and its economy may be negatively impacted as well from a potential trade war with China, an unchecked rally in the US dollar, and large fiscal spending plan at a time when unemployment is back to record low levels,” Pelletier said, adding that the Fed’s persistent keenness on hiking interest rates may also end up hurting US growth.
“With all of this uncertainty ahead and equity markets at maximum complacency, perhaps now is as good time as ever to at least look at taking some profit off the table or employing some risk-management strategies to your portfolio,” he concluded.
Related stories:
Are investors right to be nervous?
Advisor: my clients aren’t concerned by the Trump factor
“The world’s largest economy is now in the hands of a wild card, someone who is calling for material change but leaving everyone speculating on what that may look like,” said TriVest Wealth Counsel portfolio manager and OCIO Martin Pelletier. “At the same time, there is an air of complacency in the equity markets, where investors are not just hoping for the best outcome, but counting on it.”
This is reflected in sell-side reports that dismiss potential NAFTA risks, which could particularly hurt the energy sector. “As a result, certain stocks and sectors are discounting a zero impact in their valuations — something we view as quite dangerous when it comes to the forward risk versus reward outlook,” he said.
While Pelletier can only say that Trump “may well have more of a negative impact than a positive one on Canada’s markets and its economy,” he notes a selective optimism among investors who put on blinders and “choose to chase 2016 returns hoping they will repeat.”
Obstacles to a repeat include a Canadian federal government that is untested in dealing with trade challenges and policy changes; increased taxes on income, carbon, and possibly healthcare benefits; and the likelihood of more competitive US corporate taxes under Trump.
“That said, it’s not all roses south of the border as the American market and its economy may be negatively impacted as well from a potential trade war with China, an unchecked rally in the US dollar, and large fiscal spending plan at a time when unemployment is back to record low levels,” Pelletier said, adding that the Fed’s persistent keenness on hiking interest rates may also end up hurting US growth.
“With all of this uncertainty ahead and equity markets at maximum complacency, perhaps now is as good time as ever to at least look at taking some profit off the table or employing some risk-management strategies to your portfolio,” he concluded.
Related stories:
Are investors right to be nervous?
Advisor: my clients aren’t concerned by the Trump factor
