FYI | Nov 16 2016
By Peter Switzer, Switzer Super Report
Every time I think of the Trump victory I’m grabbed by that old movie title that asked: “What just happened?”
This was a satirical comedy and there are those out there who thought the only way Donald Trump would’ve been President of the USA would’ve been in a satire!
In fact, The Simpsons in the past — many years ago — looked at Lisa Simpson as an adult in the future, who had just been named President and she lamented how she had to deal with the former administration’s huge deficit left behind by President Trump!
But this is not a TV satire, this is reality. However, like in a satire, the stock market hated Trump before the election and showed, using money, that it did not want him. But post-poll it’s all forgiven and all the way with Donald J. This definitely sounds like a satire.
Like the market, I wanted a Hillary win, not because she looked like the best candidate, (though on a human being basis I suspect she is) but because the market was afraid of the wild promises of Trump. He sounded worrying and filled with uncertainty and the market prefers certainty.
So when the FBI trumped Hillary over her email stupidity, Trump went up in the polls and the market went down.
Pre-election when it was thought Hillary would win, the stock market went up and when we saw this was wrong on Wednesday our time, our S&P/ASX Index lost 4%. Then it settled on about a 2% loss ahead of Wall Street’s reaction. It too was negative — they hated Trump, remember — but then his victory speech started to turn sentiment and analysts started looking at his promised economic policies and revisionism crept in. And we were off to the races with Donald.
I wrote a piece for Switzer Daily entitled: What just happened? Donald is taking us to La La Land! Yahoo!
And I was right, with the Dow Jones up over 5% since the Trump surprise and we’re up 4.1% and for the week we were up 3.6%, so Donald is no longer seen as a threat to the global economy, US stocks and, undoubtedly, our stock market.
The pre-poll thinking was if Trump won, the market would be down 10% at worst, which would rattle confidence and put the Fed on hold with the expected and needed rate rise in December. This too is a confidence thing and another retreat by the Fed, which we’ve seen for nearly two years, would have made the doubters and doomsday merchants feel vindicated and confirm the good sense of buying safe government bonds at ridiculous interest rates or yields.
But the new take on Trump has changed all of that and so the consensus is that he will spend on infrastructure, cut taxes, pump up economic growth, help inflation and that means interest rates will rise.
I like the scenario as it makes my favourable view on stocks and the economy seem even more likely. Trump could prove to be the confidence circuit-breaker that has been desperately needed since the GFC saw governments hand over policy to central bankers.
These people are primarily inflation-fighters and all of a sudden they’ve been asked to find their old hat as “growth- and job-creators”, but as a one trick pony, their cutting interest rate play has been found wanting.
The US has a new pony, who’s more like a stallion and he could take us all to the races. I’m not alone on this and so let me list the new takes on Trump that add to the more optimistic view:
- There’s a growing call that Dow 20,000 is on the cards this year!
- The hate-love turnaround for Donald on the Dow was 5.4% in three days!
- US banks are up on better growth, less regulation and the expectation of higher interest rates. “This is a grand slam home run for the industry,” Dick Bove, vice president of equity research at Rafferty Capital Markets, told CNBC and this will help our banks’ share prices.
- Despite early fears, the new view on a Trump administration is that it will be business-friendly, which is a positive for stock-players.
- Trump critic, Warren Buffett, has admitted that stocks will go up under Donald, “and it would have been with Hillary.” Asked if he felt optimistic about the United States, Buffett added: “100 percent. … The market system works. It doesn’t work for everybody. It works in aggregate.”
- Credit Suisse has a positive take on the Trump years ahead expecting a toning down of trade war rhetoric and with his fiscal policies good for stocks.
- A number of US market sectors have been on a tear since the poll: Financials 11.3% higher, which was the best week since the bull market started in 2009; industrials were up; healthcare 6% and bio-tech had the best week ever, up 14.4%.
- Growth stocks are in and yield-substitutes are out but for yield-chasers, there will be value as long as you can watch your capital go on a wild ride.
- One US fund manager summed up the new feeling this way: “The people we talk to are more engaged in trying to come up with alpha generating ideas more than in the entire period of the post financial crisis.” (This huge sentiment turnaround stuff.)
- The bond market is pricing rising interest rates and some experts worry about that, but they’re also pricing in more economic growth that will help earnings.
- At long last the copper price is joining the party of other resources and this metal is seen as a proxy for global growth. The global PMI is now at an 11-month high and that could partly explain it, as does all this talk about an infrastructure boom.
- This newfound Trump optimism comes as eight of the 11 S&P 500 sectors showed year-over-year earnings per share growth for the third quarter and overall earnings increased by 3.6%, according to data from S&P Global. “This is the first quarter where we’ve seen positive growth after four quarters of earnings contraction, so we’ve finally gotten out of that trough,” Erin Gibbs, equity chief investment officer at S&P Global, told CNBC. Fourth quarter earnings are expected to top the latest quarter’s efforts.
- Investor anxiety that has held stock markets in a range now can break out.
So what are the worries from here?
The price of oil will be keenly watched and what OPEC and their oil producing mates get up to will be a big watch. The US dollar and what it can do to commodity prices, but the growing global demand story will be working against that worry. And of course, Donald Trump, the team he selects and what he says will always be a risk but you can only hope that he plays the winning game that explains why he becomes the 45th President of the USA on January 20, 2017. What is interesting is that without Donald Trump we would have had more of the same — a slow, grinding higher economic and market outcome. He should shake up things and produce better growth and higher stock markets but he also could bring closer the next recession and market crash.
I can’t see it in 2017 but some time in 2018 I will be looking for omens.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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