Can the Trump Bump go the distance?
The Dow Jones has finally crashed through the 20,000 barrier, giving beleaguered US President Donald Trump a welcome shot in the arm. It took just 42 trading sessions for the Dow to climb from its previous high of 19,000 – to put that in context, it took 483 sessions for it to climb from 18,000 to 19,000.
US Banks Boosted
Despite a pre-inauguration blip, traders are now betting heavily on the POTUS to press on with promised fiscal spending packages. A flurry of activity in his first weeks in office saw Trump sign executive orders to roll back Dodd-Frank regulatory burdens. He also cleared the way for the construction of two controversial pipeline projects.
Trump Bump Around The Globe
The Trump Bump hit markets across the globe with the DAX and the CAC showing big gains against the FTSE 100’s more modest 0.2 per cent. However, the pound did well against the dollar, hitting $1.26 for the first time since December. But despite not matching the gains of its German and French neighbours, the FTSE 100 is currently trading around 20 per cent higher than it has since the EU referendum, boosted by the weak pound and the Bank of England fiscal stimulus.
But are these soaring values at their peak? And would UK investors be wise to cut their exposure to UK markets in the expectations of a crash?
Reasons For Caution
The VIX, the so-called ‘fear index’, is at its lowest level since 2008, investor confidence is high and the market is relentlessly bullish. But Trump himself has already predicted a massive recession, stating during the first Presidential debate that stocks are in a “big, fat, ugly bubble” and that it’s a terrible time to invest.
It seems there may be trouble ahead, but will it be a necessary correction in the 15-20 per cent range, or a catastrophic event?
Smart investors are watching the CAPE P/E ratio for clues. It currently stands at 29, and has gone higher – but only in 1929, and during the dotcom bubble of the 1990s. The next big stress test for the market and whether the DOW can go higher and break 21,000 or suffer a correction will be President Trump’s address to Congress and what actions follow. The POTUS will be expected to put real flesh on the bones of his policies and turn investor hopes into reality.