Eugene Grygo, Chief Content Editor, FTF News
What is happening to the romance between Wall Street and President Donald J. Trump?
Let’s start with the fact that Trump and Wall Street were not getting along during the 2016 presidential campaign.
In fact, we reported that, at first, Wall Street resisted Trump’s charms even though some of his rhetoric must certainly have intrigued banks, asset managers and traders. However, after the election, the fickle and nervous on Wall Street had a change of heart and gave the new president a Trump-bump that has been underway for many months now.
However, recent events — the Russian influence scandal and the spinoff dramas of the firing of FBI director, James Comey, and the queries into former national security adviser, Michael Flynn — have created some doubts and panic on Wall Street about the Trump Team and the chaos factor.
In fact, The Washington Post in a recent blog posting, “The one number that shows Wall Street’s faith in Trump is imploding,” argues that the fact that the U.S. dollar has given up its post-election gains is a sign that Trump’s fans on Wall Street may be rethinking things.
“Here’s why,” writes Matt O’Brien, a reporter for Wonkblog, “If Trump really did slash taxes and boost spending, the Federal Reserve would almost certainly have to increase interest rates more than it thought it would to keep the economy from overheating. And if it did that, then more people would want to move their money to the United States where it would now earn a better return — pushing up the demand for, and, as a result the price of, dollars.”
But O’Brien argues that some on Wall Street are questioning whether “their dreams of a big, fat Trump stimulus” will come true, “which is to say that the dollar is back to where it was on election night. … That, you see, may be the best barometer for how much Wall Street believes Trump’s promises — or doesn’t.”
The same worries are emerging in other corners of the world.
The deVere Group founder and CEO, Nigel Green, is speaking out against Trump, saying on May 22 that the President is “the single biggest threat to investors’ portfolios.”
Green cites the “significant Trump-triggered global market sell-offs last week ahead of his maiden foreign trip as president.” Green adds that Trump “poses the greatest risk for regular investors in the world — even ahead of a possible recession in China.”
Green says that there are four reasons that underpin his argument:
- DISTRACTION: “First, the ongoing scandals could quite feasibly distract the Trump administration from its agenda of tax cuts, deregulation, infrastructure spending and other pro-business legislative measures, which are hoped would have beneficial effects for investors.”
- TOO UNPREDICTABLE: “Second, whilst in many ways, Trump appears to be less of a geopolitical risk now that he was at the beginning of his tenure, whichever way you look at it, his administration is chaotic and unpredictable – and history shows that financial markets loathe uncertainty. This was demonstrated by last week’s panicked sell-offs.” The ongoing scandal of Russia’s intervention in the U.S. election, initial chatter about impeachment and “the unprecedented media circus” could spur investors to react “in a knee-jerk manner that could be detrimental.”
- MISSING RISK SIGNALS: With so much media scrutiny focused on Trump’s woes, “investors could miss other important geopolitical and economic risks that could affect markets and, therefore, returns,” Green says. “These include the downturn in China’s credit impulse that could create an important drag on Chinese growth in the near future. Of course, this could have serious and far-reaching consequences — yet few people are as interested in this, or other key risks, as they are in Trump.”
- A CATALYST FOR A MARKET CORRECTION: “And fourth, it could be reasonably argued that a market correction is needed and that Trump and the scandals following him could be the catalyst for this.”
A market correction aside, it’s not all doom and gloom as Green argues that Trump’s $110 billion arms deal with Saudi Arabia, a “more conciliatory and statesmanlike tone” toward Muslim leaders, and his working relationship with China’s President, Xi Jinping, serve as evidence that Trump “is — finally — appreciating the value and importance of good foreign relations.”
Ultimately, this other Trump effect — the media-related shock waves — could become opportunities, Green says. “Trump is creating volatility and is likely to continue to do so. But whilst this can pose a real threat to those who are unprepared, complacent, or who overreact, volatility is good for markets and savvy investors alike, because it generates important investment opportunities,” he says.
But I suspect this romance is not over. On May 22, the news of the $100 billion arms deal with Saudi Arabia sent industrial stocks upward.
I have another theory.
I think Trump and Wall Street have similar mercurial personalities that may be more in sync than observers realize, which means that things will be great on the upswing but hell on the downswing.
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