Tag Archives: S&P 500

What will Donald Trump bring to the markets?

It happened. Nobody expected (really) that an outsider as Donald Trump could win the election for the presidency against the candidate of the establishment, Hillary Clinton. But Trump will swear his charge as the 45th president of the USA in Washington next January. What will he bring to the markets?

The first reaction but all except negative. S&P 500 and Dow Jones went up in the following days after the election. The rise has been around 2% in this period.

S&P 500 chart in T-Advisor

S&P 500 chart in T-Advisor

Dow Jones chart in T-Advisor

Dow Jones chart in T-Advisor

Trump has campaigned for an expansive economic model. He underlined this idea in the address after the victory, because he insisted in rebuilding infrastructures. Maybe, markets have chosen to look the positive part of the Trump proposals, as NY Times comments. The positive reaction was not only in equities, but also in bonds. The position commented in Black Rock put the accent in the possible reflation if new administration confirms the Trump programme.

The effects were not so nice in other world regions. For instance, Latam received a hit and the markets (above all, Argentina and Brazil) dropped dramatically. The worst result was in the Mexican market, with a loss of 6.7% in the last 7 days. There are fears about the next decisions related to Mexico and Latam from USA, above all what refers to immigration and free trade.

Mexico IPC chart in T-Advisor

Mexico IPC chart in T-Advisor

We are not trying to predict the future. Markets usually have their own way to welcome a president. In this case, the result was positive, but it does not mean that there will be a bubble, as some say, or it will be the next crash. For sure, there will be several changes compared with the Obama Administration. Trump has also the support of the US Congress, as Republicans have the majority in both houses and this can push their economic decisions. We will comment next year to contrast the initial perceptions and the reality.

USA: economic uncertainties in an election year

The American economy has shown how an open economy can perform the best and the worst. In the years of the beginning of the crisis, there was a huge drop in all indicators. The GDP fell an 8% in a quarter in 2009, but at the end of the same year, it grew around 4%. However, the evolution shows a great instability and the forecast are also similar, with a perspective of 2-3% GDP growth for this and next year.

US GDP evolution in the last years

The past market turmoil was also dangerous for investors. Under these circumstances, the Federal Reserve chose a wait-and-see strategy. Finally, in its last meeting, the institution pointed out two rate hikes instead of four, as it mentioned in December. Investments and exports remain soft and a rate hike could make dollar more expensive, which would not be positive for future developments.

These uncertainties happen in a presidential election year. Caucuses and primary elections show the following stage: Democrats fight is between the moderate Hillary Clinton and the liberal (in an American meaning, which in Europe would be social-democrat) Sanders; on the other side, Republicans are divided between the millionaire Donald Trump and the senator Ted Cruz. Clinton and Trump, respectively, have the advantage. The difference is that the Republican Party does not support Trump. Let’s see the evolution of this situation, even more when The Economist listed a possible Trump victory as one of the 10 main global risks.

What is happening in the American markets? If we take into account the S&P 500 as one of the main references, there was a steady grow till last year, when market uncertainties were back with the Chinese crisis and how it could affect US, apart from the drop of the oil price.

T-Advisor chart: S&P 500 evolution in the last 5 years

T-Advisor global trend evolution also shows this weakness in the last year:

T-Advisor chart: USA global trend evolution

The investing landscape is not clear, but several experts are optimistic about a positive evolution of S&P this year, with a closing better than in the beginning of the year. For instance, Oppenheimer is the most optimistic and bets that the reference index will close 2016 around 2,300 points.

In the case of the Dow Jones, these are the companies with the best performance in the last year:

Best performance assets in Dow Jones

On the contrary, these are the worst:

Worst performance assets in Dow Jones

It is notorious how technology is not a sure bet, as Microsoft is on the top, but IBM is amongst the worst-performance companies, just to mention two very well-known brands.

To sum up, politics will influence this year in America, but the economic machine works very independent from them. The Fed actions, the evolution of the oil price and the dollar, as the Asian evolution will have more effects surely than the possible Trump-Clinton election.