Since Donald Trump was elected president, US stocks have charged from one new high to the next. Last week, they hit a speed bump. Investors had been looking forward to hearing more about the fiscal stimulus and infrastructure spending spree Trump has been promising. Instead, at his press conference, he launched an attack on the pharmaceutical industry, saying it got "away with murder" on prices. Having wiped billions off that sector of the market, he then unsettled the others by failing to flesh out his stimulus plans.
"Pro-growth policy promises need to be delivered to support asset prices at current levels," as ING's Viraj Patel told the Financial Times. More broadly, investors drove up stocks by tuning out the elements of Trump's platform and personality that bode ill. They received a nasty reminder of them last week. Trump remained in campaign mode, haranguing critics and barely addressing his plans. His performance showed investors, who had been charmed by his conciliatory acceptance speech, "how quickly his mood can swing", says Roger Blitz, also in the FT. Trump's threat of tariffs on German cars this week, moreover, has revived fears of protectionism.
Meanwhile, Wall Street can't rely on much of a fillip from earnings or valuations. The former are expected to have grown by just 4% year-on-year in the previous quarter, while the latter are sky-high, implying lacklustre long-term returns. The cyclically adjusted price/earnings ratio is 27, compared to a long-term average of 16. So there is little to cushion the impact of Trump's mood swings on the market. Investors are in for a bumpy few months.
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