Are the Financial Markets being ‘Short-Sighted’ over Trump’s Victory?

The financial markets could be being “short-sighted” over Trump’s victory, warns a leading investment analyst at one of the world’s largest independent financial advisory organizations.

The warning from Tom Elliott, deVere Group’s International Investment Strategist, comes as the S&P 500 Index wiped out a 5 per cent loss by the end of trading that had been triggered by Donald Trump’s surprise presidential election victory.

Mr Elliott comments: “Against most analysts’ predictions‎, the S&P 500 ended yesterday in positive territory. 

Investors focused on three planks of Trump’s economic policy that are seen as beneficial to the US stock market.

First, the lightening the load of regulations on certain sectors. This will help banks (repealing Dodd-Frank perhaps), mining and energy (repealing of some environmental laws), abolishing Obama’s Affordable Healthcare Act and the government’s pressure on pharma companies to reduce drug prices to European levels, which boosted pharma stocks.

Second, the creation of an infrastructure fund to build bridges and repair roads will boost certain sectors through increased government demand.

And third, Trump is seen as fiscally lax, following the record of previous Republican presidents. He has promised to lower taxes for companies and various segments of the population and his infrastructure projects will be pro-cyclical – that’s to say, boosting demand in an economy ‎that is already growing at a decent pace of 2.9 per cent annualised in the last quarter.”

He continues: “However, there are concerns that the financial markets are being somewhat short-sighted with yesterday’s rebound – the biggest stock market rebound since 2008.

There are some potential risks that should still be taken into account.

These include the threats to trade agreements, old and new, and his pledge to halt immigration on which so many sectors of the American economy rely.”

He goes on to say: “Trump’s plans could well increase overall demand in the economy, boost growth and corporate earnings in the near term, but result in inflation further down the line.   A typical boom and bust scenario may follow. 

Avoid Treasuries in this longer term scenario, which will react badly to a reassessment of currently low long term inflation and interest rate expectations.

Mr Elliott concludes: “Investing under Trump may be a volatile experience, but with this comes key opportunities.  As always, investors need to remain diversified globally, by sector, and by currency exposure.”

Author: Dylan Jones

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