A recurring theme you’ve heard from us is that stocks take their longer-term cues from what’s happening to corporate profits and expectations of corporate profits, how the economy is expected to perform (which supports profits), and what’s happening to interest rates.
But shorter term, any number of events or issues can creep on to the horizon and create distractions. Recall when problems in Greece and Europe bubbled to the surface. That’s just one example.
Like an 800-pound gorilla, the dominant theme that affected markets last month and since the election has been the presidency of Donald Trump and the policies he aims to implement.
While the political discourse has been unusually bitter, we really believe our differences as Americans are dwarfed by what unifies us.
That said, we recognize the obvious: Donald Trump is a controversial figure who elicits a myriad of opinions from Americans.
Injecting politics into any commentary has risks. We all have different viewpoints and filters and what’s said can be innocently misinterpreted. But we feel it would be a disservice to you to avoid any mention of Trump this month.
Our goal is not to praise or criticize Trump’s policies, only to view them through the narrow prism of the market, whether favorable or unfavorable. So let’s dig in.
Following his win, expectations of corporate and individual tax reform were among several policy prescriptions that fueled gains.
Moreover, regulatory reform and higher defense spending are expected to receive a warm reception from a sympathetic Congress. While Republicans have historically turned a cold shoulder to higher domestic spending, investors are still betting on some type of increase in infrastructure outlays.
Yet, we also have an administration that has railed against globalism and has shunned large, multilateral trade deals.
Markets like the former positions; they cast a wary eye on the latter, fearing the prospect of a damaging trade war.
However, early optimism has turned to caution. Few things move quickly through the halls of Congress. Competing interests seem set to slow down corporate tax reform. And Trump, who ran as a very unconventional candidate, has yet to shed his unorthodox ways.
We recognize his style appeals to some folks, but his more controversial initiatives and unorthodox ways have created some uneasiness among investors. In addition, there are concerns his pro-growth initiatives that fueled gains late last year could get bogged down in Congress.
We suspect we’ll eventually see tax reform. It’s a key policy initiative for the new president. Still, patience will be needed.
Elsewhere, themes that have supported shares during the long-running bull market remain in place. Economic growth has yet to abate and there are few signs from leading indicators that it will stall. Plus, corporate profits are rising. And for now, the Fed maintains that any series of rate hikes are expected to occur gradually.
Other articles filed under Market Commentary
January 30, 2018 - “Don't tax you, don't tax me, tax that fellow behind the tree,” quipped Senator Russell Long, who chaired the powerful Senate Finance Committee from 1966 to 1981. Tax Reform is Here This past year, Halloween was barely over when House...
January 16, 2018 - It’s hard to believe, but another year is almost behind us. With January just around the corner, now is a great time to review various items you may want to consider as you get set to enter 2018. Many of...
January 11, 2018 - The End of the Financial Year As we head into the final lap of 2017, it’s been a banner year for stocks not just in the U.S., but around the world. Investors have been focused on the upbeat fundamentals —...
December 10, 2017 - Tens of millions of Americans are looking forward to the day they retire. Others enjoy their profession and can’t imagine a life without work. Yet, even those folks recognize that one day they won’t wake up on a Monday and...
October 25, 2017 - One topic that comes up often in conversations with our clients is retirement planning. While goals and dreams may differ, there is one common theme — financial security. More specifically, many ask the question, How much monthly income will I...
- Ask the Chief: Why is Gamma the Same for Call and Put Options?
- Allison Blake Named Among Top List Women Business Leaders in San Diego