FYI | Mar 01 2017
By Peter Switzer, Switzer Super Report
Trump must produce a huge sausage to match the sizzle or it’s stocks down
This is going to be a huge week for the stock market and it could have a big impact on where our stocks go. And it comes when most of you know that I’m surprised that there hasn’t been a pullback already but these are strange times created by a strange US President in Donald Trump.
You know, one thing I’ve always tried to avoid saying, given my academic training and my knowledge of economic history, is to ever say: “This time, it’s different.”
Commentators for decades who have unwisely tried this dramatic line have ended up with a fair bit of egg on their faces but I have argued this time is historically different.
No one alive has seen negative interest rates before and that is an extraordinary development and interest rates are a powerful determinant of share prices, economic growth, confidence, business investment and jobless rates.
Donald Trump is also unique as a US president. However they have had some unusual ones, and Ronnie Reagan is one and I suspect Donald is channelling him in areas such as tax cuts and less regulation.
The single biggest reason for the US stock market being at all-time levels has been the unbelievably low level of interest rates and the fact that they have been down and low for nearly nine years!
And then along came Donald, who promised to add a bit of fiscal stimulation — central bank bosses had been hoping and talking about such things as soon as rates went negative in places such as Europe and Japan.
So Donald has been good for the 10% US rally since November 8 and our 9.2% comeback of the S&P/ASX 200 index, though a bit of it has been good economic and company profit news.
But what Donald gives, Donald can take away and a potentially terrifying Trump test comes this week with his first major address to Congress on Wednesday our time.
Terrifying because the market could react negatively if the speech has the depth of a Trump tweet. The devil might wear Prada but it’s going to be the devil in the details or the lack of details that could rock markets.
“If he comes out next week and there are little or no details other than that it is going to be great, that is going to be a time where we could have the first sort of crack in the armor,” said JJ Kinahan, chief market strategist at TD Ameritrade in Chicago. (Reuters)
Donald Trump won me over because he won the market over but now he has to convince us that we weren’t sold a sizzle that comes without a sausage. The tax reform message has to be better than it will be “phenomenal”.
“The market wants to hear about concrete tax reform plans that have traction either across the Republican base or have the potential to reach across to moderate Democrats,” said Alan Gayle, director of asset allocation with RidgeWorth Investments in Atlanta.
“If the market begins to doubt Trump’s ability to follow through on his promises, then I would think that we would see a 5% market correction fairly easily.” (Reuters)
However, if he delivers some substance and the economic data here and abroad is largely better than expected, then we could see another leg up, though I’m not expecting another 10%. That will come when Congress gives Donald the green light legislation tick of approval.
So what is bound to help or hurt the market this week? Try these:
- Local business indicators (Monday), economic growth (Wednesday), home prices (Wednesday) and building approvals (Thursday)
- In the USA, we see durable goods, economic growth, consumer confidence, housing sector data, as well as manufacturing and services sector readings.
If Trump produces the sausage that matches his already sold sizzle, and economic readings hit doomsday merchants for a six this week, then stocks go higher as Marcel von Pfyffer of Arminius Capital argued on my TV show last week.
On the flipside, if Trump has an unimpressive sausage and economic readings disappoint then the stock market could succumb to gravity.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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