Whether you look at financial market performance, consumer confidence, the purchasing manager survey, or unemployment data, it is clear that Trump has been great medicine for the globe’s economies and financial markets. The election of Donald Trump has brought higher confidence to consumers, investors, and unemployed Americans. The Trump effect has also played out in international economies. The globe is now in full expansion mode according to the latest purchasing manager index readings.
Equity markets roared in the first quarter of 2017 as confidence grew. The S&P 500 advanced 6.1%, NASDAQ gained 11.9%, MACM’s Diversified Equity portfolio advanced 9.5%, and MACM’s Dynamic Growth portfolio returned 8.7%. All told, the quarter provided strong absolute and relative returns for MACM clients including over 300 basis points of alpha. Technology, healthcare, and consumer discretionary sectors led the equity markets to new highs.
Likewise fixed income, commodities, and real estate logged another quarter of modest returns as investors opted for equity positions in corporate America over highly valued bonds and untimely commodities.
The move in the equity markets can be attributed to improving economic conditions and continued low inflation. Consumers continue to save and reduce debt more than they spend. While this may seem troubling to some economists, this is the needed action for our economy to regain its health over the long-term and for this economic cycle to stay in a slow but steady expansion. As a result inflation continues to remain subdued. Improving trends in the economy are rooted in job growth and the dent that we are now making in structural unemployment. Our workforce in America is finally expanding as workers who left the workforce return believing that efforts to find work will succeed. This has already proven true as we have seen significant gains in construction and manufacturing jobs. Trump has encouraged American builders and manufacturers to put American workers first and move their manufacturing back to American soil.
The job gains are evidence that this in fact is occurring and the Trump Effect has given discouraged workers confidence to seek employment.
Most economists last year believed we were on the verge of wage inflation and that the Fed would have to raise interest rates soon or inflation would rise significantly.
The Trump effect has changed most economists’ position on this and they now believe that the Fed can leave interest rates alone this year without the risk of inflation. The Fed has also recognized this and has changed their target for unemployment to 4% from 4.5% noting the growing workforce.
Earnings expectations are also on the rise and providing fuel for gains in equity markets. Earnings for the S&P 500 grew by 10.1% in the fourth quarter of 2016 after 8 quarters of flat or no growth. First quarter 2017 earnings for the S&P 500 are now expected to grow near 17.0%.
Trump has certainly had some problems moving his agenda forward and this has been due almost entirely to obstructive actions by Democrats. The repeal or replacement of Obama care has been tabled, and the executive order regarding immigration is tied up in the courts. Tax cuts, banking deregulation, and a major defense and infrastructure bill, are queued up but it is unknown whether they will get done. Regardless progress is being made in the economy and the equity markets will continue to move higher.