Last night, the Dow Jones index in the US closed at a new high for the 12th session in a row.
That sort of winning streak for stocks hasn’t been seen in 30 years. Maybe Donald Trump was onto something when he told US voters: “We’re going to win so much you’re going to be sick and tired of winning”.
Markets have got all excited at the prospect. They’re already pricing in all those victories.
Trouble is, at some point the pre-match bragging stops. That’s when you have to make good on your words and step up and do some winning.
And today’s the day when we start to get a real idea of whether there’s anything more to Trump than a big mouth…
It’s time for Trump to deliver
Today US president Donald Trump stands up in front of both houses of Congress to outline his economic agenda.
Earlier this month he said he was about to unleash a plan that would “phenomenal in terms of tax”. His goal is to cut “the overall tax burden of American businesses, big league” (or “bigly”, if you prefer).
Then yesterday, he promised $1trn of infrastructure spending, plus a massive increase in the defence budget. He wants to hike the defence budget by nearly 10% – $54bn (although apparently this will somehow be paid for by cuts from everywhere else).
As a result, markets have priced in a lot of hope. So when he speaks, there are three main “pro-growth themes” they’ll be focusing on, as Mohamed El-Erian puts it in the FT: “tax reform, deregulation and infrastructure.”
On top of that, markets will be hoping to find that Trump really is ‘protectionist-lite’ – ie he talks a big game on it, but all he really means is tweaking trade relationships rather than going full Smoot-Hawley.
There’s a lot of expectation riding on this. Can he live up to it?
I don’t know. But I’m really curious to see what comes out of this.
For perspective, at the moment, Trump isn’t top of my ‘market threat/opportunity pile’, and I don’t think he should be at the top of yours either (unless you’re a US reader, perhaps). Purely in investment terms, the US market is already very expensive and therefore not that interesting.
The situation in the eurozone is far more interesting in that – with the French election specifically – there’s a potentially spectacular buying opportunity coming up in a region that’s already cheap. Alternatively, there’s a potentially spectacular bust waiting in the wings, that could trigger the unwinding of the global debt bubble once and for all.
So that’s where my main focus is at the moment.
Who is Donald Trump?
That said, Trump is going to be extremely important over the next few years, and it would be nice to get a handle on him.
Some people seem to believe (or hope) that he’s a master strategist and that his whole approach – acting as though he’s still the underdog campaigner, rather than the guy who’s now responsible for the US economy – is about crafty misdirection. He sends the hostile, stupid media chasing after one apparently outrageous policy while he gets on with pushing through policies that really matter in the background.
That’s one view. The other is that he pretty much means what he says; that he really is impulsive, bullying, and devoid of the sort of emotional intelligence you need to be a half-decent leader.
In my experience, few people are as Machiavellian as the former description gives Trump credit for. At the same time, I struggle to believe that Trump is actually out-and-out thick. Today’s speech might give us a decent idea as to which of the two views is closer to the truth.
Trump has talked a big game. He now needs to deliver – or at least maintain the momentum. If he stands up and just carps on about the press and the immigrants, then the market is likely to lose steam, or even tank.
Don’t get me wrong – the market may struggle even if Trump focuses on spending lots more money and doesn’t mention “fake news” even once.
For a start, whatever he has planned, it still has to get past his own party. A lot of them don’t like higher government spending, and a lot of them don’t agree with his particular policies on corporate tax reform.
So there’s no guarantee that what Trump talks up tonight and what actually happens will correspond with one another. Equally, these things take time. None of this stuff – from infrastructure to tax cuts to healthcare reform – is going to happen tomorrow.
However, I think if his goals sound promising, the market will give him the benefit of the doubt. (At least, until Janet Yellen, chair of the US Federal Reserve, stands up on Friday and gives her response.)
What I think would scupper things is if he stands up and sounds vague, or if he stands up and just rants away in campaign mode, rather than presidential mode. If that’s what happens, then I think we have to worry. That would convince me that he really doesn’t have a handle on what being the president actually involves. Hopefully that’s not what we’ll get.
Anyway, if you’re really keen to see it in real time, he’s speaking at the equivalent of 2AM UK time tomorrow morning. I’ll be in bed. But if there are fireworks in the market by the time I get up, I’ll be sure to unpack it all tomorrow.