Global stock markets are looking for new signs of optimism amid a range of geopolitical uncertainties and a slower than expected start to the Trump administration’s legislative agenda. We have maintained from the beginning that stock markets were overeager to capitalize on the Trump election victory.
In our excerpt from our December 2016 Global Outlook, Mr. Trump, Your Economy Is No Ronald Reagan Economy, we noted:
One of most striking contrasts between the Reagan and the Trump years will be the initial economic conditions that shape the early administrations of each of these presidencies and how the structure of the U.S. economy has evolved since the days of Ronald Reagan.
Donald Trump inherits an economy that is closer to the end of the expansion than the beginning. According to traditional business cycle chronology, the U.S. expansion began in June 2009… has already lasted almost eight years, and the capacity to lower unemployment and raise real economic growth without also raising inflation has been largely exploited.
With this said, the basic framework for global economic outlook remains unchanged from spring 2016.
It is true that the president’s legislative agenda lags. Still, action on tax reform by year-end is likely though not inevitable. Legislative action is normally slow and messy and it is risky to draw hard conclusions at any point in time.
The U.S. stock market is showing remarkable patience. The rotation in stock market sector performance since the beginning of 2017 suggests that global growth momentum is now the dominant theme. Nevertheless, the initial gains after the Trump election have been sustained in most sectors.
Financials have not advanced since the beginning of the year but they have held their own. Industrials, materials, and consumer discretionary stocks, which were all part of the “Trump bump,” have made small additional gains since the start of 2017.
Telecommunications and energy stocks have sold off, but other sectors, like health care, which took a political drubbing during and immediately after the election, have since made good gains. Interestingly, in the wake of the election of one of the least technologically inclined presidents in recent memory, technology has been the second best performing sector, up 11.6 percent since November 8th, second after financials (Chart).
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