Should the Dow Jones Industrials index rise another 1.3% (to 26,450) by the end of this week, the benchmark index will have generated its best return ever in the first year of any post-war President, says Russ Mould, AJ Bell’s investment director.

As it stands, however, Trump sits behind Barack Obama for the strongest gains in their first year in office. The Dow has risen 31.7% since President Trump’s inauguration date of 20 January 2017.

In general, says Mould, Republicans get a cooler reception from markets in their first year in office. The difference may be that most Republicans are ‘fiscally prudent’, which means they like to balance the books and not embark on any reckless spending. Trump, by contrast, has launched a raft of infrastructure spending and tax cuts likely to provide a short-term boost to the economy, and therefore markets.

Mould adds: “The stock market under the current President is also enjoying conditions which are much more helpful than prevailed under many of his predecessors. Inflation is low, interest rates are low and bond yields are low (even after five increases from the US Federal Reserve since December 2015) and Congress seems happy to let the Federal deficit rise above 100% of GDP, while corporate merger and acquisition and share buyback activity is giving equities a further lift.”

Stephen Penfold, senior investment manager at 7IM, says: “US economic data over the fourth quarter of last year was incredibly strong, propelling the US economic surprise index to its highest ever. Whether this is because of, or in spite of, Trump may be a moot point. But there’s no denying that consumer and business confidence has been buoyed further by Trump’s tax reform bill.”

The question for investors is whether this buoyant picture can last. The Federal Reserve expects to raise interest rates three times this year. There are also other concerns about the US economy: national debt has never been higher. Inflation is rising, and could accelerate if low unemployment feeds through to wage growth. This could weaken the US economy, making it more difficult for US stocks to make progress.”

Ian Heslop, manager of the Old Mutual US Equity Income fund, says Trump’s policies are very stimulative to an economy that is already fairly strong and that has low unemployment. He adds: “If the effect of stimulating an already-strong economy eventually leads to the US Federal Reserve increasing the speed of the monetary tightening it has already embarked upon, that could bring about a distinctly chillier environment for equities.”

This is more of a problem because US stock market valuations now look very expensive, meaning they would have further to fall. Mould says that they are already factoring in a lot of good news and investors need to be careful, even if the outlook is rosy at the moment.

Penfold says they remain slightly underweight the US on valuation grounds and the exposure they have is tilted towards smaller companies, which he believes is a ‘purer’ way to play to the strength of the US economy. The group also expects ‘value’ stocks to return to popularity, after a strong run by more growth-driven ‘FANG’ stocks (Facebook, Amazon, Netflix and Google).

The top-performing presidents in stock market terms: