It’s very difficult to make any sense of what Donald Trump’s inauguration as US President will mean for investors in 2017. Views among investment experts range from good to bad to “we have no idea”. Here is a selection of four different views from industry experts.
“Trump will be positive for the markets”
With the US election fresh in their minds, 72% of Fidelity’s analysts who focus on the US say their companies think the impact of Donald Trump’s win over the next two years will be positive for the markets.
Reasons for this positivity include corporate tax reform, income tax cuts, infrastructure spending, Trump’s pro-fossil fuel stance, deregulation, steeper yield curves and the ‘clean sweep’ in Congress.
Among Fidelity’s analysts covering Europe, the number who believe Trump’s presidency will be positive for their companies over this period (39%) outnumber those who regard it as negative (12%). The majority of analysts covering Asia (67%) say their companies do not expect any impact at all. It is only in emerging Europe, the Middle East, Africa and Latin America (EMEA/Latin America) where the impact is widely seen as moderately negative (64%).
These were the results from Fidelity International’s annual Analyst Survey, encompassing the views of 146 equity and fixed income analysts resulting from c. 17,000 1:1 meetings held with corporate decision makers.
“First terms of Republican Presidents have been bad for investors”
“Markets need to be careful what they wish for if they see Trump as the new Ronald Reagan, at least in 2017,” explains Russ Mould, investment director at AJ Bell.
“Global share prices have been on a tear since Donald Trump’s victory in last November’s US election, buoyed by hopes that his plans to cut taxes, push for deregulation and increase infrastructure spending will fuel growth and inflation, replicating what many see as a market-friendly package of reforms to match that launched by Ronald Reagan after his 1980 triumph over Jimmy Carter.
“However, investors might like to consider that the Dow Jones Industrials initially ran up strongly on the news of Reagan’s November 1980 victory only to completely lose momentum after his inauguration on 20 January 1981, in a classic case of “buy on the rumour, sell on the fact”.
“Last Wednesday’s press conference ultimately failed to provide any firm details on how Trump intends to push through his planned programme (or how he intends to fund it) so the market will start looking for firm proposals pretty quickly once he starts work in earnest on Monday 23 January.
“Failure to deliver concrete proposals could spread further doubt, eroding the support for stocks and the dollar and giving bonds a fresh boost. A poor year for US stocks would be oddly in keeping in with the historic trend evidenced by the first terms of Republican Presidents since the Second World War.
“The Dow Jones has declined on eight of nine occasions during the first year of a Republican Presidency and it has fallen on all four occasions when a Republican has taken the reigns from a Democrat.
“The average first-year drop under post-war Republicans of 1.2% compares to an average 13.2% gain under Democrats.”
See the table below for the details.
Performance of the Dow Jones Industrials in the first year of post-war Presidencies
table class="tg">ElectionPresidentPartyYear 11948Harry S. TrumanDemocrat12.90%1952Dwight D. EisenhowerRepublican-3.80%1956Dwight D. EisenhowerRepublican-12.80%1960John F. Kennedy *Democrat18.70%1964Lyndon B. JohnsonDemocrat10.90%1968Richard M. NixonRepublican-15.20%1972Richard M. Nixon **Republican-16.60%1976Jimmy CarterDemocrat-17.30%1980Ronald ReaganRepublican-9.20%1984Ronald ReaganRepublican27.70%1988George H. W. BushRepublican27.00%1992Bill ClintonDemocrat13.70%1996Bill ClintonDemocrat22.60%2000George W. BushRepublican-7.10%2004George W. BushRepublican-0.60%2008Barack ObamaDemocrat17.50%2012Barack ObamaDemocrat26.50% Average 5.60% Average - Democrat 13.20% Average - Republican -1.20%
Source: Thomson Reuters Datastream.
* John F. Kennedy assassinated in November 1963 and replaced by Lyndon B. Johnson
** Richard M. Nixon resigned August 1974 and replaced by Gerald R. Ford
“Trump’s tax reforms take centre stage”
Richard Buxton, the head of UK equities at Old Mutual Global Investors says: “What will occupy front and centre stage in the first hundred days of Trump’s presidency is his focus on tax reforms. Slashing the corporate income tax rate should unleash significant cash piles currently stored overseas. US companies will, however, see both winners and losers depending on the nature of the reforms designed to favour exports over imports. For Joe Public of Main Street the focus will be on how quickly any policies translate into more secure job prospects and some wage growth, fulfilling one of Trump’s key election pledges.
“Two other key – and interlinked – issues will dominate markets thinking during the first hundred days. What will the new administration do in terms of protectionist policies and what role will the dollar play in this? Trump’s recent desire to talk the dollar down eased short-term fears that a stronger dollar could hurt corporate America. Will Trump deliberately attempt to weaken the US currency to put pressure on countries he deems to have artificially weak currencies and big trade surpluses? Or will rising US interest rates support the consensus view that the dollar will remain strong? Could a lower dollar actually force the rest of the world to follow America’s example and raise interest rates? And, if so, what effect would that have on global stock markets? Could the unprecedented eight-year run in global equities be coming to an end… finally?”
“Even the pros don’t know where this will go”
Lee Wild, head of equity strategy at Moneywise’s parent company, stockbroker Interactive Investor, says: “Just after City traders switch off their screens, Donald Trump will become Mr President. It's when nervous investors, already sitting on fat profits after a stunning run since the US election, worry that Trump could start doing real damage.
“Only now do we find out if Trump can deliver on any of his economy-boosting policy promises. In his first 100 days, it will be absolutely critical that both he and his unknown team say and do enough to convince financial markets he can deliver.
“The big fear is that the honeymoon is over even before the wedding night. Traders have already taken some money off the table, and markets are undeniably jumpy. But despite some selling, no one wants to call this rally over prematurely, and indices remain near record highs. Even the pros don't know which way this will go, near-term at least.”