US stocks lose faith in the Trump bump

Ralph Waldo Emerson said that "a foolish consistency is the hobgoblin of little minds". Donald Trump "is proving to be anything but small-minded", says Randall Forsyth in Barron's. He has produced "several head-snapping reversals" of previous positions. China is apparently no longer a currency manipulator. Janet Yellen may, after all, get another term at the US Federal Reserve. After decrying US overseas adventures, he has waded into Syria and is threatening North Korea.

As far as markets are concerned, says Larry Elliott in The Guardian, the impression is that Trump is "dangerously unpredictable". It's pretty clear now that "he is making it up as he goes along". The failure to replace Obamacare "was the first sign of trouble", since it cast doubt on the White House's economic stimulus package. History shows that "even the most effective presidents barely get through Congress half of what they campaigned on", notes David Rosenberg of Gluskin Sheff.

That apparently comes as news to US investors, whose enthusiasm for equities since Trump's election suggests they have priced in a hefty stimulus through tax cuts, deregulation and higher spending on infrastructure. Stocks hit new records in March, but have drifted downwards since then as more and more investors have decided that Trump looks both capricious and ineffectual.

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It hardly helps that doubts over the strength of the US economy are growing. Last week we highlighted the split between the buoyant soft data business surveys and confidence indicators and the less impressive hard data, or official figures. Retail sales slipped for a second successive month in March, while the annual rate of inflation fell by 0.3%. There has also been a slowdown in bank lending. Total loans and leases extended by commercial banks were up by just 3.8% year-on-year in late March, compared to 6.4% for 2016 as a whole. Given this backdrop, there is a great deal at stake this earnings season: profits are expected to rise by 9.2% year-on-year, the fastest growth since 2011, while revenue growth is also supposed to return with a vengeance. Sales are expected to grow by 6.9%. With valuations historically overstretched, "there is no scope for disappointment", says Fidelity's Tom Stevenson in The Daily Telegraph.

So with the outlook for growth and earnings uncertain for now, and Trump's "Dr Strangelove-style foreign policy antics", it's no wonder stocks have faltered. "US defence stocks look like a decent bet," concludes Elliott. "The rest of the market does not."