For anyone who works out, runs, swims, cycles or for that matter binges on Easter candy (ahem!), you know when you’re close to being done.
Right now North American markets seem to be loosening their collective belts and readying for dessert. In December of 2014 the S&P500 had a closing value of 2089. On November 3rd two years later and it closed at 2085.
By March 2nd of this year the market rallied to 2383 for a return of 14%+, or nearly 300 points over a 4 month period. It closed at 2343 today, April 18th. That’s a staggering rally in a major market over such a short period of time. Zero growth for 2 years followed by a 14% rally. This is what it looks like
The rally has become known as the Trump Rally born as it was just days before Donald Trump became the 45th President of the US November 8th 2016. In truth there’s often a period of time where markets express their collective glee at the end to a period of uncertainty, a relief rally regardless of who has been elected.
This particular President was elected in large part on his promise to reform healthcare, lower corporate taxes, spend $1tn on infrastructure, erect trade barriers etc., measures that would be pro-growth, at least in the short term. Given the U3 measure of unemployment in the US is at a low 4.5% these collective measures would add fuel to the fire of inflation, or so goes the narrative.
However President Trump’s initial efforts to force through the American Care Act, aka Trumpcare, were met with a wall of opposition to its content so fierce that the Bill was pulled. DOA, and it was his fellow Republicans who administered the coup de grace. Seeking success elsewhere he has moved on from healthcare reform at home to sabre-rattling and more in North Korea, Syria & Afghanistan.
Whilst failure in the area of healthcare reform doesn’t necessarily preclude success in other areas, it does diminish his authority somewhat as well as having budgetary implications. It makes it harder if he surrounds himself with people telling him not to compromise, but he has shown some recent flexibility in that area along with a host of others.
Indeed he has reversed position in a number of areas where it’s served his purpose e.g China is no longer a currency manipulator if it can help with the North Korea file. We can judge the effectiveness of this policy-on-the-fly governance at a later date, but his style does give us pause.
President Trump’s growth-oriented policies may indeed pass but they will be very much altered from their original design. Making healthcare more affordable by separating 28 million voters from the coverage afforded them by Obamacare was not the way to go. Compromise is the new four letter word if the President is to avoid becoming a lame duck.
However dilution of growth-oriented policies brings into question their potential to produce the kind of growth the equity markets are expecting to see. Put another way markets may have gotten ahead of themselves somewhat. By most measures they are expensive however we continue to advise an allocation to equities in both North America and elsewhere commensurate with personal & corporate circumstances. We have become more selective and more cautious about committing new funds to the broader markets at this juncture.
Finally, I would offer this: President Trump is a very different kind of President. What I see is a man who is learning on the job and there’s a great extent to which that is true of all presidents. As a Washington outsider he’s having to adjust his autocratic style and temper his desire to shoot from the hip. Sometimes as with healthcare it turns out to be ‘harder than he thought’ and you find yourself a student of the game when you thought yourself master. I await his next domestic policy announcement with bated breath. From what I read the king’s crown is in storage and he’s compromising with the commoners in his own party as if he were a mere mortal millionaire.
Maybe the markets have a couple more laps in them, perhaps they can fit in a dessert before paying the dinner tab, we shall see. What I do know is that at some stage we will be presented with a buying opportunity where excellent businesses are on sale at bargain prices. Until that time enjoy the ride and happy investing.