More and more Wall Street business leaders and strategists are voicing concerns about what protectionist policies and the unpredictable nature of President Donald Trump could do to markets and the economy.
But we all know that action speaks louder than words. What investors actually do stands in stark contrast to what people say. The Dow, the S&P 500 and the Nasdaq once again reached historic highs on Friday.
And the Russell 2000 Index, an index of small business stocks that tend to do most of their business in the United States, is just a few points from the all-time record it reached last December in the wake of the Trump market euphoria.
In addition, the VIX ((), a measure of volatility known as the Wall Street Fear Gauge, has also dropped by almost 25% this year. If investors were really scared of Trump, the VIX should be much higher.
And CNNMoney’s Fear & Greed Index, which examines the VIX and six other measures of investor sentiment, is showing signs of greed and is not far from extreme levels of greed.
Of course, Trump still doesn’t seem to stop himself from tweeting about things that, let’s be honest, won’t do anything to help the economy – though Nordstrom investors are richer despite Trump’s brand dumping attacks of his daughter Ivanka.
But to give credit where it is due, it seems that the main reason stocks have taken off recently is that Trump has promised to unveil a “phenomenal” tax plan soon.
Trump also pledged again to invest more in infrastructure when he met with airline CEOs on Thursday.
This is what the market wants to hear.
“We are still expecting fiscal stimulus, lower taxes and less stringent regulation,” said Matt Lockridge, director of the Westwood Small Cap Value Fund. “Timing is the big question, but it happens.”
Lockridge believes that many of the companies that generate the majority of their revenues in America should benefit if Trump’s recovery ends up pushing the economy into high gear.
He likes stocks in a variety of industries, like the movie owner Masco ((), snack company NOT A WORD (( ) and aerospace equipment Kaman (( ).
Another fund manager said he was also still optimistic about small U.S. stocks that could get a boost from Trump’s policies.
Barry James, President and CEO of James Investment Research, said he bought the IShares Russell 2000 ETF (() the day after the election, as he is confident that Trump’s stimulus package will stimulate the growth of small American businesses.
“When Trump said America first, I really think that’s what he meant,” said James, adding that he thought the Internet phone service Vonage ((), rental retailer with purchase option Aaron’s (( ) and discount chain Large lots (( ) could all flourish if Trump’s proposals materialize.
But there is another reason why the US markets are close to all-time highs. Despite all the uncertainty in Washington, the United States is still regarded as a model of relative stability compared to other parts of the world.
The European economy is still a big gray card thanks to Brexit, the rise of populism in France, which raises concerns about a so-called Frexit and other concerns about the problem that never seems to go away – Greece’s debt woes.
The Japanese economy also remains stagnant. We are now talking about more than a lost decade. It is plural. And the Chinese economy is also slowing.
Bond fund manager Bill Gross has often joked that America is like what Johnny Cash and Kris Kristofferson sang in “Sunday Morning Coming Down” – the “cleanest dirty shirt”.
To that end, analysts at bond rating company Fitch wrote in a report on Friday that “elements of President Trump’s economic program would be positive for growth” but added that “the current balance of risks indicates a result less benign world. ”
Of course, this piece has two sides. Trump’s bomb could come back to haunt him.
His continued penchant for scolding companies he doesn’t agree with on Twitter could shake investor confidence.
And while his travel ban proposed to immigrants from seven predominantly Muslim countries has been overturned by the U.S. justice system for now, the president has promised to fight for his reinstatement.
Even if he loses this battle, it’s still clear that Trump is seriously considering turning in on himself, with tariff and border tax plans that could spark trade wars with Mexico, China and Japan. . This could harm large American multinationals and lead to job losses.
But investors still seem to believe / hope that the merits of Trump’s growth stimulus and tax cuts will outweigh the impact of isolationism. Hope they are right.
Investors can hold their noses, close their eyes and stuff cotton wool in their ears to drown the president. But they still buy stocks.