A growing number of business leaders and Wall Street strategists are expressing concern about the impact of President Donald Trump’s protectionist policies and unpredictable nature on markets and the economy.
But we all know that actions speak louder than words. What investors are actually doing is in stark contrast to what people say. The Dow, S&P 500 and Nasdaq hit all-time highs again on Friday.
The Russell 2000, an index of small business stocks that tend to do most of their business in the United States, is just a few points off its all-time high set last December on the euphoria of the Trump market.
moreover, VIX (VIX), a measure of volatility known as Wall Street’s Fear Index, is down nearly 25% this year. If investors really fear Trump, the VIX should be higher.
CNNMoney’s proprietary Fear & Greed Index, which looks at the VIX and six other measures of investor sentiment, shows signs of Greed and isn’t far from Extreme Greed levels.
Of course, Trump can’t seem to stop tweeting about things that, to be honest, do nothing for the economy.
Unsurprisingly, however, the main reason stocks have risen again recently appears to be Trump’s promise to announce a “wonderful” tax plan soon.
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Trump also pledged to increase investments in infrastructure again when he met with airline CEOs on Thursday.
That’s what the market wants to hear.
“We continue to expect fiscal stimulus, tax cuts and deregulation,” said Matt Lockridge, manager of the Westwood Small Cap Value Fund.
Lockridge believes that if Trump’s stimulus boosts the economy, many companies that derive most of their revenue from the United States should benefit.
I like stocks in various industries such as movie theater managers Masco (trout)Snack Food Company J&J (JJSFMore) aerospace equipment company Kaman (Kamun).
Another funder said he was still bullish on small U.S. stocks that could be highlighted by Trump’s policies.
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Barry James, president and CEO of James Investment Research, said: iShares Russell 2000 ETF (IWM) He believes Trump’s stimulus will boost small business growth in the United States.
“I really think that’s what Trump means when he says America first,” James said, adding that internet telephony services Vonage (VG)rental retailers Aaron’s (Earn) and discount chains large lot (big) If Trump’s proposal gets through, all could be successful.
But there is another reason US markets are near all-time highs. Despite all the uncertainty in Washington, the United States is still seen as a paragon of relative stability compared to the rest of the world.
The European economy is still a big wild card thanks to Brexit, the rise of populism in France, fears of so-called Frexit, and further fears of the Greek debt problem, a problem that will never go away.
The Japanese economy is also stagnating. We are now talking about his lost ten years or more. Plural. And the Chinese economy is also slowing.
Bond fund manager Bill Gross often joked that America was like “the cleanest dirty shirt” sung by Johnny Cash and Kris Kristofferson in “Sunday Morning Coming Down.”
To that end, analysts at the bond-ratings firm Fitch wrote in a report on Friday that “elements of President Trump’s economic policies will be positive for growth,” but that “the current balance of risks is likely to continue in a calmer world.” We are on track for positive results,” he added.
Of course, that coin has two sides. Trump’s bombshell could come back to haunt him.
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His continued tendency to criticize companies he disagrees with on Twitter could undermine investor confidence.
His proposed travel ban on immigrants from seven Muslim-majority countries has so far been overturned by the U.S. court system, but the president vowed to fight for its reinstatement.
Even if he loses that battle, he seriously considers Trump to turn more inward with plans for tariffs and border adjustment taxes that could ignite a trade war with Mexico, China and Japan. It is clear that there is.
But investors still seem to believe/hope that the benefits of Trump’s growth-boosting plans and tax cuts outweigh the effects of isolationism. Let’s hope they are right.
Investors may snuff out the president by pinching their noses, closing their eyes, or stuffing their ears with cotton. But they are still buying shares.
CNNMoney (New York) First published February 10, 2017: 11:55 AM ET
