Earnings not boosting Trump Trade, yet markets continue to rise
Just a little over two weeks ago Donald Trump took the oath of office. Since then, nary a day goes by without President Trump dominating the pages of most every major publication. Love him or hate him, the man certainly knows how to command attention.
Yesterday both the Dow and the Nasdaq hit new interday highs, but on valuations that remain stretched as earnings reported so far have been beating less than normal and caution over policial volatility holds the “C” suite back.
Fourth-quarter results have so far eclipsed Wall Street expectations, with 65 per cent of companies beating earnings projections and 52 per cent topping forecasts for sales — both below the five-year average. Corporate America’s guidance for the current year is already coming up light, with BofA noting that twice as many companies have forecast earnings below projections than above.
“[Companies] are clearly excited about lower taxes, a lower regulatory environment and more pro-growth policies, but that is offset by the trade policy and immigration,” says Grant Bowers, a portfolio manager with Franklin Templeton. “There was some built-up hype after the election but we have seen a lot of conservative guidance as companies face an uncertain outlook.”
At Tematica we suspect that investor expectations, which translate into higher share prices, are getting way ahead of themselves. According to a recent Gallup poll, 53% of American’s disapprove of the job he is doing with only 42% approving. That is the lowest level of any president in history after two weeks in office. So whether you love or hate the job he is doing, he is likely to face significant headwinds pushing through legislation, which means these changes that investors are so optimistic about are likely to come later rather than sooner and may not deliver quite the level of change anticipated.
What has us even more concerned are all the global events that would otherwise be receiving front-page treatment that are relegated to lining hamster cages, without much attention. Greece… still a potentially big problem. Italian banks … still seriously troubled. French elections… one of the front runners is hell bent on exiting the European Union. Were that to happen, the Eurozone would collapse and its currency with it – a very big deal.
We will have a lot more on this in the coming days and weeks, so stay tuned!
