Trump one year on: has he ‘made America great’ for investors?
In the run up to the election, many investors expected the markets to slump and took flight to safe haven assets.
As panic subsided and investors heeded ‘keep calm’ advice to continue with their long-term strategies, analysis turned to the likely winners and losers of a Trump presidency.
Given his pre-election rhetoric, the likely winners from a Trump victory would be defence and infrastructure, healthcare, energy and fossil fuels, and gold, while the losers were considered to be emerging markets and the US dollar. There was also some understandable nervousness about Trump’s finger hovering over the nuke button.
So a year on, has Trumponomics delivered and have UK investors been rewarded?
The short answer to the question of what Trump has achieved in his first year is “not much”, according to Hartwig Kos, CIO and co-head of multi-asset at SYZ Asset Management.
“Trump continued to shout for the repeal and replacement of Obamacare and a cut in taxes, while he told the American people to expect a $1trn infrastructure package. What actually happened? Obamacare is still in place and the debate about tax reform has barely begun. It has also gone awfully quiet on the matter of making US infrastructure ‘second to none’,” he says.
Jason Hollands, managing director, business, development and communications at Tilney Investment Management Services Ltd, says despite the lack of progress in delivering the much-promised infrastructure blitz, the Trump administration has been active in cutting red tape.
He says: “Business confidence in particular has been buoyed by expectations of significant tax reforms with aggressive cuts to corporate tax rates at centrepiece. If enacted, the proposed cuts will see the US go from having some of the highest corporate tax rates in the world to the lowest.”
However, Kos says that while the prospect of tax cuts have somewhat revived the reflation trade since September, it can be argued that any potential success regarding US tax reform could happen with or without Trump.
“In light of the 2018 mid-term election, the Republican Party – which has control over both the House and the Senate – is under enormous pressure to get at least one flagship legislation ratified. With its mind sharpened by this, the GOP might finally overcome its differences and get a bill passed. Trump is largely just noise – a very loud noise though,” he says.
Indeed, while progress in enacting his election agenda has been slow, US equities have surged (see the graph from Tilney below). The TV personality naturally claimed credit for this, stating that “the reason our stock market is so successful is because of me”.
US unemployment is at a 17-year-low of 4.1% and wages are rising in real terms against a benign inflationary background. Annualised GDP growth has reached the targeted 3% and the US stock market (S&P 500 Index) has delivered a positive return every month this year since Trump took residency of the White House. This is the first time this has happened in 90-years of data.
Hollands says the US economy is undoubtedly in decent shape but it’s a moot point as to what extent Trump has contributed to this.
He says: “The US economy has been expanding for nine years now and its stock market has also enjoyed a prolonged bull run supported by highly accommodative monetary policy from the US Federal Reserve, so the generally positive economic and market environment began well before election day 2016.
“However, it would also be wrong to totally dismiss the impact of the Administration, for all its flaws, in creating the current environment.”
Despite the initial flight to gold which saw it peak at $1,332.58 on the morning of the result, over the year, safe haven assets have lagged behind.
European equities have delivered the best returns since Trump was elected – had you invested £10,000 you would now have £12,263 – a return of 22.63%.
Asia Pacific equities have followed closely behind, returning 20.36% over the same period while emerging market equities have also had a surprisingly strong year under President Trump, delivering a 19.79% return.
In money terms, a £10,000 investment in each of these would now be worth £12,036 and £11,979 respectively.
The table below shows the best and worst performing asset classes over the past year:
Tom Stevenson, investment director for Personal Investing at Fidelity International, says: “As with the EU referendum, the result of last year’s US election was a major surprise. However, unlike with Brexit, investors have remained optimistic throughout the first year of the Trump Presidency.
“In fact, despite concerns about the delivery of radical economic reforms, a number of major markets have gone on to hit record highs under President Trump. Much of this has been driven by an improving global economic backdrop, particularly in Europe and Asia where we have seen strong growth.
“Had you set up and held a well-diversified equity portfolio, as our analysis shows, it would have delivered respectable returns over the past 12 months. The gains from shares have more than made up for any losses from bonds, as the interest rate environment has tightened.”