More and more business leaders and Wall Street strategists are voicing concerns about the effects of protectionist policies and the unpredictable nature of President Donald Trump on markets and the economy.
But we all know action speaks louder than words. What investors are actually doing is in stark contrast to what people are saying. The Dow, S&P 500 and Nasdaq hit all-time highs again on Friday.
And the Russell 2000, an index of stocks of small companies that tend to do most of their business in the United States, is just a few points off the all-time high it hit last December as a result. of the euphoria of the Trump market.
In addition, the VIX (VIX), a measure of volatility known as the Wall Street fear gauge, is also down nearly 25% this year. If investors were really afraid of Trump, the VIX would have to be much higher.
And CNNMoney’s own fear and greed index, which examines the VIX and six other measures of investor sentiment, shows signs of greed and is not far from extreme greed levels.
Of course, Trump still can’t seem to stop tweeting about things that, let’s be honest, won’t do anything to help the economy – although Nordstrom investors are richer despite Trump attacking them for dropping the brand. of his daughter Ivanka.
But to give credit where it’s due, it seems the main reason stocks have rebounded in recent times is because Trump has promised to unveil a “phenomenal” tax plan soon.
Related: Rare Streak For US Stocks: Long Time Without A 1% Dip
Trump also re-pledged to further invest in infrastructure when he met with airline CEOs on Thursday.
This is what the market wants to hear.
“We still expect fiscal stimulus, lower taxes and less regulation,” said Matt Lockridge, manager of the Westwood Small Cap Value Fund. “Timing is the big question, but it’s coming.”
Lockridge believes that many companies that generate the majority of their revenue from the United States stand to benefit if Trump’s stimulus packages end up pushing the economy into high gear.
He enjoys stocks in a variety of industries, such as the movie theater owner Masco (MAS), snack food company NOT A WORD (JJSF) and aerospace equipment company Kaman (KAMN).
Another fund manager said he was also still bullish on smaller US stocks that could benefit from Trump’s policies.
Related: Wall Street Has A Powerful Seat at Trump’s Table
Barry James, chairman and CEO of James Investment Research, said he bought the IShares Russell 2000 ETF (IWM) the day after the election, because he is convinced that Trump’s stimulus package will stimulate the growth of American small businesses.
“When Trump said America first, I really think that’s what he meant,” James said, adding that he thought Internet phone service Vonage (VG), hire-purchase retailer Aaron’s (AAN) and discount chain Large lots (FAT) could all prosper if Trump’s proposals were accepted.
But there’s another reason the US markets are near their all-time highs. Despite all the uncertainty in Washington, the United States is still seen as a model of relative stability compared to other parts of the world.
The European economy is still a big wild card thanks to Brexit, the rise of populism in France leading to concerns about a so-called Frexit and more concerns about the problem that never seems to go away – the debt problems of the Greece.
The Japanese economy also remains stagnant. We are now talking about more than a lost decade. It is in the plural. And the Chinese economy is slowing down as well.
Bond fund manager Bill Gross has often joked that America is like what Johnny Cash and Kris Kristofferson sang on “Sunday Morning Coming Down” – the “Cleanest Dirty Shirt”.
To that end, analysts at bond rating firm Fitch wrote in a report Friday that “elements of President Trump’s economic program would be positive for growth,” but added that “the current balance of risk points to an outcome world less favorable “.
Of course, there are two sides to this coin. Trump’s elation could come back to haunt him.
Related: Oreo Make Worries About Rising Populism
His continued penchant for berating companies he disagrees with on Twitter could undermine investor confidence.
And while his proposal to ban immigrants from seven mostly Muslim countries has been overturned by the US justice system for now, the president has vowed to fight for his reinstatement.
Even if he loses this battle, it’s still clear that Trump is seriously considering turning in on himself, with plans for tariffs and border-adjusted taxes that could spark trade wars with Mexico, China and the United States. Japan. This could hurt large US multinational corporations and lead to job cuts.
But investors still seem to believe / hope that the merits of Trump’s pro-growth stimulus and tax cuts will outweigh the impact of isolationism. Hope they are right.
Investors can cover their noses, close their eyes and stick cotton in their ears to drown the president. But they still buy stocks.
CNNMoney (New York) First published on February 10, 2017: 11:55 a.m.ET
