If there’s one thing that the last 90 days have taught us, it’s that nothing lasts forever where President Donald J Trump is concerned. Michael Wilson, Editor-in-Chief of IFA Magazine, tries to work out what it might mean for the US markets. 

One moment Russia is an important ally of the United States, headed by “a nice guy who says nice things about me”, and the next moment it’s a kingpin of the axis of evil in Syria, led by Satan himself. One moment it’s all about abolishing Obamacare, and the next it’s about backing off from the self-same aborted project with the minimum loss of face. (I mean, c’mon, who’d have thought it could be so complicated to run a welfare system?)

One week NATO is obsolete, and the next it’s absolute. One week we’re promising to create lost jobs in the rustbelt, and the next – well, maybe next year or the year after that, I don’t know, these things cost money. This week we’re threatening those 35% tariffs against Mexican and Chinese goods, but maybe we haven’t decided yet how to break it to all the lower-income Americans who’ll still be forced to pay for those goods when they’re more expensive. It’s a shifting kind of truth which ultimately destabilises everybody.

The end of the Trump trade?

There are those, of course, who insist that, dealmaker that he is, the President is simply testing the ground when he says he wants something, or that he likes/hates somebody. He doesn’t necessarily believe it. It’s what a hard-bargaining dealmaker would call a price discovery process.

And that, to be frank, is less than what the business world requires from the world’s most powerful policymaker. Nor do I think anyone will find it hard to understand why it baffles America’s diplomatic partners. How exactly do you plan around all these unknowable contingencies?

And so to the Trump Trade, the burst of stock market optimism that’s been in evidence since last November’s election. The 18% rise in the S&P between late October 2016 and early March has been fuelled by confidence that Mr Trump can indeed Make America Great Again (not that its 160% growth under Obama’s presidency was exactly a slouch performance, but why let the facts get in the way of a good historical rant?).  And all the while, America’s self-fulfilling prophesy was sucking in foreign capital and boosting the dollar.

Statistics source: www.forex.academy

Ambitious economic underpinnings

Well, we can’t deny that President Trump’s plan for a vast expansion of job-creating debt, coupled with hefty tax cuts, does sound good to the financial markets. The trillion-dollar infrastructure plan has the undoubted ability to create manufacturing jobs. The promised straightening out of the financial markets ought to improve America’s competitiveness. And just think of all those wonderful jobs that will be created for one of the world’s youngest workforces. (Oh yes, did we mention that?)

So what was behind that 500 point fall in the S&P since late February? Why did the Dow Jones industrial index have its longest losing streak since 1978 during March? Why did the FTSE-100 spend February, March and early April tracking sideways?

Well, we might disagree, but I’m looking at Trump’s impossibly delayed plans for budget reform, whose outline discussions are now due in – ooh, let’s see – August, maybe October. Or later.

I’m looking at the cyclically adjusted p/e ratio on the S&P, which, at the time of writing is nudging a heady 29 even though the trailing twelve months ratio is barely 22. And I’m thinking, the market has leveraged itself quite a long way in anticipation of things that just keep on getting postponed.

The senior investment houses were hanging in there at the time of writing, but lower down the food chain the commentators were shuffling their feet. “The end of Trump trade tranquillity” was how the Wall Street Journal summed up the late March action. Will we hear more of the same? Abolishing uncertainty is part of the President’s job.