Powerless

Pfäffikon SZ, Switzerland – The euphoria in the US stock markets has no limits. Since November 2016, the leading S&P 500 index has risen a whopping 12%. The so-called ‘Trump Rally’ is based on two pillars, namely; Tax cuts and investments in infrastructure. More spending space for businesses and citizens, attracting inflation and growth are Trump’s magic words.

Hope
The key question is how long the market can continue to rise based on hope and promises. Concrete results remain absent for the time being. Additionally, Trump encounters headwind from his party to pilot his plans through the US Congress. Figures soft as butter, such as consumer and business trust, are noting “sky high” but hard data is missing. For example, the so-called retail sales in the US fall for the first time in two years. Also, car purchases in the US are also disappointing. The purchasing manager index for manufacturing in the US has fallen this year, which suggests that the cost of producing in the US has increased.

Pumping up
Another striking feature is that many investors meanwhile do not take into account further interest rate hikes in the US; this does not fit the image of an excelling economy. Critics are wondering how Trump wants to finance its tax plans. Trump’s supporters argue that the new financial platform will finance itself in the long run; this must first be coughed up by the already impressive US debt mountain. The fact is that so far the US has always got away with its debts, but new power blocs, such as China and India, and to a lesser extent Europe, are starting to annoy this.

In any case; Trump appears powerless in many respects. The financing of his dreamed wall between the US and Mexico is still unreachable. And there are more campaign promises that Trump needs to reverse. Sometimes it is said that a weak President shows his power through the army. You can estimate how the first 100 days of Trump have elapsed.

For the internationally oriented investor, interesting times lie ahead. Now that the US markets have taken a substantial advantage on the future, it is worth considering to say this region farewell. After all, based on standard investment criteria there are other regions more interesting nowadays. The investor is not powerless.

It remains for me to wish you a good weekend.


Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.