Friday, April 6, 2018

So, Was the Market Right About Trump to Begin With? -- Or -- How This Likely Plays Out...

Thought I'd share with you my entry this morning to our internal market log:

4/6/18 Friday

Upon leaving the office the afternoon of the 2016 Presidential election, I recall telling Jeannette that “Trump’s not going to win, but if he does the Dow will be down a thousand points tomorrow.” Well, of course I was wrong on both counts; he won, and the Dow opened only a couple hundred points lower (although Dow futures were down nearly 900 points overnight after the results were announced), and closed I believe 300+ points higher.

So why all the pessimism going in, and the ~900-pt drop the night of?

It's pretty simple; the pre-election market was listening to, one, the trade rhetoric and, two, the authoritarianism; the un-business-friendly tone inherent in candidate Trump’s manner and approach.

Thus, when he smartly pivoted upon victory to topics like tax reform and deregulation – and away from protectionism and authoritarianism – the market not only breathed a sigh of relief, but cheered the new President’s vision and promptly ascended to all-time highs.

Trump spent his first year basking in the glory of a strong, steady bull market in stocks.

To understand how we’ve come to the present we simply need to recall what had the market so worried to begin with and acknowledge that the President’s actions of late -- tariff schemes and personally-motivated attacks on Amazon -- are consistent with those worries.

How the present correction unfolds over the next few weeks/months all depends on how Trump gauges the political ramifications of keeping those original, economically-destructive promises versus abandoning them in lieu of the business-friendly policies that sent sentiment through the roof and lit a fire under the present bull market.

If it indeed comes down to the political ramifications (which we should assume it does), then, when the dust settles, there’ll be compromise and the global markets can move on to bigger and better things. The only problem being, if the unsettled dust persists much longer, it’ll by itself begin weighing on the macro data and there’ll be real longer-term market potentialities to consider (that's the problem with his unusual style of "negotiation", if that's what this indeed is); which is something we'll be addressing within our clients’ target weightings, but not till we see the evidence….

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