Assessing Trump’s first 100 days in office
In the aftermath of Trump’s unexpected Presidential victory in November, both US and global stock markets have rallied strongly, with investors seemingly buoyed by campaign promises of stimulating economic growth through a series of reforms.
Now popularly labelled “Trumponomics” two of these promises revolved around tax reform and infrastructure spending. However after finally announcing this week expanded details of how these reforms will work, Adrian Lowcock, investment director at Architas Multi-Manager, says there is a danger this optimism could fall flat.
“ Wednesday’s announcement fell far from the market’s expectations as it lacked sufficient detail and no explanation of how it was going to be funded,” says Lowcock. As a result he says the Trump administration still has a long road ahead to get the tax reform through.
“Although there is agreement in both parties that the tax system in the US needs reform, the President will need to make compromises to win supporters from each party. In particular the US government remains heavily indebted and therefore is unlikely to allow significant tax cuts without significant cuts in spending.”
John Husselbee, head of multi asset at Liontrust Asset Management, says Trump’s failure on ‘Obamacare’ has already highlighted the risks over the extent to which the new President can back up his pre-election promises.
“Trump is a businessman not a politician, so he is seen as pro-business,” says Husselbee. “However enacting political change is a laborious process, and Trump may find that his Apprentice-ship in business has not left him well equipped for the slow pace of government.
In addition, Husselbee says that while Trump’s corporate tax reform has dominated sentiment, he notes that not all of his likely policies will be so business-friendly.
“In my view, his protectionist agenda will only hurt the US consumer and economy,” he says.
The Trump bump
Both Lowcock and Stephen Mitchell, manager of the Jupiter Global Managed fund, note that while markets have rallied since Trump’s election, not all of this is down to him. Instead much of it has been driven by better economic data and improved corporate profitability.
Mitchell says: “Trump was elected just as global markets were beginning to feel the beneficial effects of a renewed stimulus package put together by the Chinese authorities in early 2016 to boost an economy slowed by an anti-corruption drive. These stimulus measures have helped sustain growth both domestically and worldwide, alleviating concerns a Chinese slowdown would act as a drag on global GDP, and thus have been a helpful tailwind for Trump.”
As a result Lowcock argues the US market rally has probably got ahead of itself. “Sentiment can help drive markets higher than the economic reality and at present confidence has got ahead of the reality,” he says. “This could swiftly evaporate if investors start to doubt Trump’s ability to get changes through Capitol Hill.”
Value down the cap scale
Despite the recent market rally, Lowcock says not all parts of the US stock market are expensive. He argues that both small and mid cap sized companies should benefit the most from Trump’s planned cuts to corporation tax and infrastructure spending.
Husselbee adds: “Smaller companies are seen to be purer plays on the domestic rather than the global economy and, as such, the IA North American Smaller Companies sector has been a big beneficiary of investors looking to express a bullish view of Trump’s first 100 days in office.”
So what types of funds should investors who want access to the US be looking at? For active managers the US is a perennial graveyard, with very few being able to demonstrate a consistent track record of outperforming the S&P 500. As a result it is one country in which many advisers, at the large cap end, recommend index tracking funds.
“In the short-to-medium a tracking approach is advisable, while over the longer term we would recommend an active US small cap fund,” says Husselbee. “For tracking the market we like the Fidelity Index US fund, which tracks the MSCI USA Index, while we like the Artemis US Smaller Companies fund in the active space.”
Lowcock adds: “At present a US tracker will buy you both the expensive parts of the market, as well as the cheap, whereas active managers can be selective in both. However UK investors are usually underweight US markets so most don’t need to be too concerned. And remember markets don’t go up in a straight line, corrections are far more common than investors think.”
In summing up Trump’s first 100 days, Mitchell says while it is true he has succeeded in raising expectations, the hard work really starts now.
“He needs to choose his battles carefully,” says Mitchell. “Separating out repatriation of overseas trapped cash from other tax reforms and making headway on this would be a sensible start. Currently consensus is that this is very difficult.
“One thing that Trump’s first 100 days have shown is that the famous “checks and balances” in the US constitution do work and that he needs to better manipulate the political levers to achieve his goals in a divided political environment.”