Analysis: What if Trump succeeds?

Last year at about this time I wrote a piece titled: What if the Fed is wrong and other scary thoughts for 2016?

Analysis: What if Trump succeeds?

|

For the equity investor, the questions being asked by Trump are equally as tough.

Initial market reactions to his election have been largely positive with infrastructure, in particular, seeing a boost, albeit on expectation of fiscal stimulus than on actual ground broken on new developments just yet.

But, at the same time, there are some, like Legal & General Investment Management, who believe even partial success by Trump will see a US economy that is “already close to full capacity” overheat and could see the Fed ratchet up its rate hike timeline.

“On equities, the highest conviction view is that it won’t be another year of boring low single digit returns. 2017 is shaping up to be a year of +15%, -15% or both,” the firm said.

As my colleague Louise Hill reported, LGIM is of the view that while the significant stimulus could push earnings growth sharply higher, it could end in a “nasty hangover” toward the end of the year.

Sanguine view

Rothschild investment strategist, Kevin Gardiner, is however, far more sanguine in his outlook for US corporates.

Pointing out in his latest Market Perspective that while the US-led business cycle is mature, it is not especially feeble, and still shows few excesses.

He said: “One of the many myths about the current cycle is the idea that US Inc has not been investing. It has: until the energy sector cut back on its spending last year, the volume share of business investment in GDP had not often been higher. This is probably why we don’t hear many businesses saying they simply can’t meet demand: there is ample capacity.”

As a result, he added, while there will undoubtedly be another US recession and financial crisis at some stage, they may be some way off and they don’t always occur together.

Just as at the end of 2015, there is an awful lot to worry about as we head into 2017, with one of the big ones exactly what a Trump-led US will mean for investment markets. A great deal has been written already how bad Trump’s Twitter-happy administration could be for the US and the world, but an equally scary thought, and one that investors must mull is: What if he succeeds?