US Stock markets declines as Trump rally slumps

March 22-- In the past the Trump administration has boasted of the performance of the stock market as evidence of the success of its policies. Now that the market has begun to drop, White House secretary Sean Spicer has changed his tune.

Spicer now says that it is unfair to judge the Trump administration's economic policy on the basis of the performance of the stock market. However, the market has done very well since the election and inauguration of Trump resulting in what has been termed the Trump rally. Just back on January 25th this year the Dow Jones Index broke through the 20,000 level. On March 1 the DJI broke through the 21,000 level and the Nasdaq and S&P indices also slashed records. Earlier at the beginning of February, Nouriel Roubini had predicted that the Trump honeymoon with the stock markets would soon be over. Perhaps his prediction is coming true now. Yesterday, the DJI, the S&P 500 and Nasdaq each fell roughly one percentage point. Spicer said: “You can’t look at one indices and say that’s the benchmark for an entire economy. You see confidence levels both in small business and other surveys that show there’s continued confidence in the market.”

As I write this on the morning of March 22, the Dow Jones is down marginally but still 20,657 a large increase even since he was inaugurated as president though down from it highs. Some type of correction was no doubt to be expected. The S&P and Nasdaq are up marginally. It is really too early to tell whether the Trump Rally is done. Trump is having troubles with his health care bill. He has yet to roll out his tax cuts and infrastructure spending program. When he does so this could boost the market.

The Trump administration began to crow about its performance when the DJI broke the 20,000 level. Kellyanne Conway, one of Trump's top advisers tweeted that it was "The Trump Effect". Anthony Scaramucci, a former hedge fund manager tweeted: “Dow 20,000 = big league. Thank you @POTUS @realDonaldTrump”

Treasury Secretary Steven Mnuchin also joined the chorus of praise for the Trump administration: "There's a lot of confidence in the Trump administration and in the desire to invest in the U.S. This is a very competitive place to do business. We've got great companies, and you see that reflected in the markets." He also said that the stock market indices were absolutely a report card on Trump administration economic policy. The custom has been for administration officials not to take credit for stock rallies since the opposition will attack whenever there is a stock market decline.

It may be that the downturn is just temporary. A Business Roundtable survey of U.S. CEO's last week showed them to be the most optimistic they have been since 2009 and another survey of homebuilders found them the most optimistic since 2005. In spite of all the criticism of Trump and his continual lying and controversial tweets, his administration after all contains an enriched collection of creatures from Wall Street who are just waiting to feed on profits from deregulation, tax cuts and military spending. It should not come as a huge surprise that his administration has had a positive effect on markets. It is much too early yet to say whether the present market decline is a Trump Slump or simply a correction in a continuing Trump rally.

Dow Jones Industrial index closes about 21,000 for the first time ever

(March 1)The Dow Jones Industrial Average (DJI) the index of blue-chip US stocks closed above 21,000 for the first time ever. The DJI rose one thousand points in just 24 days equal to the previous record of May 1999 when it rose from 10,000 to 11,000.

Just a few weeks ago, the DJI took just 42 days to move from 19,000 to 20,000. Stock markets appear to be reignited by optimism about the health of the US and global economy and to believe that Trump policies of boosting spending, cutting taxes, and deregulation will result in increased profits for US business. The prospect of an early interest rate hike appears not to be regarded as negative but as a sign the economy is doing well. The rise comes in spite of the fact that Trump's speech had few specifics about his policies. The more positive tone struck by Trump seemed to soothe investor fears even though there is still much uncertainty about how Trump will be able to increase spending on the military and infrastructure, cut taxes and deregulate industry without huge budget cuts. It is difficult to see how he can not cut Medicare, and Social Security, programs he has promised not to cut. Trump said in his speech that he wanted "massive" tax relief, $1 trillion to be spent on infrastructure, and an overhaul of Obamacare. It would seem rather that he wants a replacement for Obamacare although it might be a type of "Obamacare lite". Republicans appear divided on the issue. Trump is no doubt worried about a negative reaction from his base if he does not provide a reasonable alternative to Obamacare that in spite of its problems insures many more Americans than previously.

Since Trump's Nov. 8 election the DJI is up 15.2 percent; the S&P is up about 11 percent and the Nasdaq is up 13.7 percent. The DJI closed Wednesday up more than 300 points or 1.5 percent higher at 21,115. The S&P gained 32 points or 1.4 percent to 2,395. The Nasdaq rose 78 points or 1.4 percent to 5,904. All three are record closing highs.

Peter Cardillo, chief market economist at First Standard Financial wrote:"The markets are trading higher on the softer approach by the President. The dollar and yields are moving higher as next theme of the market, the 'Fed' overrides the Trump effect." The Fed meets on March 14-15. The probability of a rate hike is now 67.5 percent. The dollar gained 0.79 percent while gold prices dropped.

It remains to be seen if stocks can remain for long at this level. On the second of February, Dr. Doom, Nouriel Roubini predicted that the honeymoon of the markets with Trump would soon be over.

Toronto and New York markets set new records again

(February 13) The Toronto stock market rose again today after setting records on Friday. Canadian Prime Minister Justin Trudeau met with U.S. president Donald Trump. They both vowed to strengthen economic ties.

The two issued a joint statement after the meeting saying that the two countries have similar priorities and this included the need to bolster trade. On the issue of modifying NAFTA, Trump said that his bigger concern was Mexico and he was only aiming to "tweak" parts relating to Canada in order to better facilitate cross-border trade. There is more than $2 billion in trade between the two countries each day.

Canadian markets strategist Craig Fehr said that the two leaders appeared to be on the same page on a number of issues including the mutual advantages of increasing trade between the two countries. Fehr said:"For those looking at it from a Canadian perspective, this meeting can perhaps be viewed as a sigh of relief — particularly when you compare it to what the rhetoric was on the (Trump) campaign trail where it was much more positioned as NAFTA being unilaterally a bad deal. This is a confirmation that campaign rhetoric was just that, and that the actual execution of any trade agreements or renegotiations are going to be far less harsh than what the original assertions may have suggested."

The Toronto stock market index the S&P/TSX set another record today following on a record close on Friday. It was up at the close to 15,756.58, up 27.46 points. Gains in metals are retail stocks more than offset some losses in the gold and energy sectors. New records were set for the third consecutive session in New York indices. The Dow Jones industrial average was up 142.79 points at 20,412.16, the S&P 500 was ahead 12.15 points at 2,328.25, and the Nasdaq composite rose 29.83 points to 5,763.96.

Fehr said that although Trump's meeting with Trudeau appeared to be one of the most successful he has had with leaders, it is still too early to know what will happen with NAFTA renegotiation:"It is too early. The press conference and the meeting is the first step in a long process of ultimately reaching trade deals over long periods of time that will be beneficial to both countries. We can't take today's meeting as the end point. It's probably more of a starting point, but it's a pretty good start in terms of setting the right tone for what a mutually beneficial relationship can and should be moving forward."Both oil and gas prices fell as did gold.

There are signs that might worry Trump. Many countries with large treasury holdings such as Japan are getting rid of them in large quantities. Supposedly, the world's safest debt market is being seen as less of a sure thing.

An article in BNN surveys CEO's of different companies on the situation. Paul Colborn, President and CEO of Surge Energy had no concern about a possible tax on goods coming from Canada: “I think [a possible border tax] is a real red herring. When I look at it, I think why would they approve the [Keystone XL] pipeline and tie in the biggest oil reserves on the planet for security of supply reasons? It makes no sense to me that there would be a big border tax.”

One company CEO Tom Leighton of Akamai Technology reacted negatively to Trump's travel ban: “The travel ban really runs counter to our culture at Akamai. Diversity and inclusion are very important to us. It makes it hard – or impossible – for some of our employees to travel, causing a lot of concern for our employee base and also our customers.”

Michael Decter president and CEO of LDIC Inc. that manages investment portfolios, thought that lower oil prices had produced a more disciplined energy sector and that Trump policies could send stock markets higher: "[Trump] has injected some unusual uncertainty into the business. But I often say to clients, many of whom as Canadians are not very keen on Mr. Trump as President of the United States, is that he may not be good for the world but he may be very good for the stock market and your portfolio. He is a very strongly pro-business president, he has a very pro-business cabinet." Decter held positions in both the Manitoba and Ontario New Democratic Party(NDP) governments.

Trump rally pauses as investors uncertain about future

(February 6) The U.S. markets have pulled back slightly today from the renewed Trump surge on Friday. However, the political furor over Trump moves such as his travel ban seem to be offset by positive expectations of Trump policies with respect to business.

Trump's recent move to change Dodd-Frank regulations on financial institutions was obviously a plus for markets. The Dow Jones average was still above the 20,000 level at 20,045.87 down just 25.59. So far, the political uncertainty and protests caused by Trump policies have not outweighed positive expectations for the future as indicated by market movements.

There are some signs that markets could turn down soon. Bloomberg data shows that the number of articles that contain the word "uncertainy" has reached a record. No doubt Trump can dismiss this as more fake news. However, investors could very well become uneasy if this view that things are uncertain persists. One would think that with such uncertainty the Chicago Board of Options Exchange Volatility index or VIX would be surging higher. It is not. Quite the opposite it has been unusually calm. Yet the Global Economic Policy Index a measure of disquiet among policymakers and politicians is the highest on record.

Another measure that gives a hint of danger is the CBOE Skew Index. This index measures the cost of buying protection against dramatic moves in the S & P 500 index. This index shows that investors are concerned about risks. Another sign that all is not well is that there is a lot of money going into gold and gold stocks. Barnaby Martin, of Bank of American Corp., wrote to investors: “While stocks and corporate bonds have rallied year-to-date, we see a very incongruous kind of calm in the markets at present. Note, that while equity volatility is still hovering around record lows, inflows into gold funds year-to-date in Europe have surged.”

Chris Flanagan also of the Bank of America says that a combination of rising yields and rising gold prices signals market volatility will soon rise. Rising benchmark bond yields together with rising gold prices have happened before previous market drops in 1973-4 and Black Monday in 1987. Further signs for a drop in the longer term are given in a recent article by Nouriel Roubini, Dr. Doom.

In Canada, even though stocks were down overall, many gold stocks rose with Barrick Gold rising 1.4 percent and Agnico Eagle up 1.3 percent to $64.97. The price of gold hit its highest level in three months as worries about the U.S. political landscape and the low loonie led to more investor interest in the metal. The financials group continue to gain slightly with bond yields rising after Trump on Friday promised to ease banking regulations. However, oil prices dropped as US supplies appeared ample and this outweighed OPEC output curbs and U.S. Iranian tensions.

The slight drop in U.S. markets may in part be the result of uncertainty over Trump policies while there was no major new economic data to move the markets. Nearly a hundred companies including Alphabet (Google), Apple, and FJacebook have banded together to present a legal brief that opposes the ban. Goldman Sachs economist, Alec Philips said that although Trump tax cuts and infrastructure funding could fuel growth his restrictions on trade and immigration could negate their positive effects. Adam Sarhan, CEO of 50 Park Investments said: "Investors are in a wait-and-see mode and are looking for the next bullish catalyst to send the market higher. There are concerns regarding the backlash against any protectionist policies that come out of Washington and other countries and investors are seeking clarity."

Analyst Roubini predicts Trump rally may soon be over

After Donald Trump's surprise election as president, U.S. stock markets rallied as Trump promised a large infrastructure program, together with deregulation in several sectors including health care, energy, and financial services.

As well, he promised cuts in corporate, personal, estate and capital-gains taxes all of which appeared to investors positive for business and corporations. Although Trump uses strong populist anti-establishment rhetoric according to the Tax Policy Center almost half of the benefits of the Trump tax cuts will go to the top one percent of earners.

Back on January 25th the Trump rally drove the Dow Jones Industrial Index (DJI) above the historic 20,000 mark. The DJI stayed above this level until this week. As I write this, the DJI is 19,853 still not far below the 2,000 level. The U.S. economist and chair of Roubini Global Economics, consultancy firm Nouriel Roubini believes that the "honeymoon" between Trump and U.S. stock markets is ending and there will be continuing market declines in the future. Roubini was among the few economists who predicted the crash of 2007-2008. He had warned about the crash in an IMF position paper as long ago as 2006. His predictions earned him the name "Dr, Doom" and "permabear" in the media.

Roubini argues that anticipation of the Trump fiscal stimulus led stock markets higher, but it will also lead to higher interest rates, and that this could dampen capital spending and slow sales in sectors such as real estate. The dollar is strengthening and could destroy many manufacturing jobs as exports become more expensive. Roubini also suggests that Trump's fiscal stimulus may be larger than expected, while he has no way of making up revenue lost when he cuts corporate, income, and other taxes. He claims that this will further inflate interest rates and raise the value of the dollar even more. In the longer term this will hurt the economy. Roubini feels that with the U.S. economy already close to full employment Trump's fiscal stimulus could fuel inflation more than it increases growth. The Federal Reserve will feel forced to raise interest rates and increase the value of the dollar even more.

Financial conditions will tighten, with the result that blue-collar workers' incomes and employment prospects will suffer. In order to retain the support of workers Trump will need to introduce further protectionist policies that will dampen economic growth and also reduce corporate profits. Trump's protectionist policies could start trade wars. This will hinder global economic growth, increase costs for consumers and hurt markets.

Roubini sees Trump policies as extending beyond traditional protectionism. Immigration restrictions will make it hard to attract talent from targeted foreign countries. Trump has already threatened foreign operations such as those of Ford in Mexico with import levies. Finally Trump is antagonizing important global economic powers such as China. Most recently he appears to have shouted at the Australian Prime Minister during a phone call and questioned a deal worked out with the U.S. to take in some immigrants from Australia. As Roubini puts it: His erratic foreign policies are spooking world leaders, multinational corporations and global markets generally.

Roubini admits that expectations of stimulus and lower taxes, plus deregulation could in the short term boost market performance but Roubini concludes: "But, as the vacillation in financial markets since Trump’s inauguration indicates, the president’s inconsistent, erratic, and destructive policies will take their toll on domestic and global economic growth in the long run."

As it is now markets have been mostly positive about Trump policies, in spite of the fact that he has withdrawn from a key trade deal the Trans-Pacific Partnership and is demanding re-negotiation of the North American Free Trade Act. Investors must feel that on balance Trump policies favor business and corporations. Many of Trump's appointees are connected to Wall Street. Policies such as his executive orders on regulations and the move in Congress to remove Obama-era regulations will lift market sentiment and perhaps offset his other moves that create protests and threaten relations with key allies. We could see a coming period with more volatility but perhaps in the longer run Nourini's prediction will turn out to be correct.

Dow Jones average breaks through record 20,000

(January 25) Positive corporate earnings helped raise investor optimism and extend a rally that has seen the US Dow Jones Industrial Average(DJ) climb above 20,000 for the first time ever.

The DJ index of blue chip US stocks reached its second fastest 1,000 point rise in history. The DJ had reached 19,000 on November 22 last year shortly after Donald Trump had become president-elect on November 8. European stocks also jumped but the Mexican peso lost value as Trump unveiled steps that included building a wall on the Mexican border. Oil prices dropped as US stockpiles increased.

Quincy Krosby, a market strategist at Prudential Financial Inc. said:“With a swift move towards signing executive orders, coupled with underlying positive economic data, clarity has begun to hit the headlines, and all the U.S. indexes are celebrating.“Clarity is the markets’ oxygen.” No doubt the nature of Trump's decisions helped markets as they included approval of two major pipelines. He also set out possible infrastructure projects and encouragement of auto producers to manufacture in the US.

The DJ had risen 134.64 points from the opening to 20,047. 35 at 11:45 AM. Boeing had the biggest gain of 4.3 percent. The Standard and Poor 500 Index (S&P 500) also jumped 0.6 percent to a record 2,293.68 at the same time. Stocks rose in Europe as well. However, West Texas Intermediate crude dropped below $53 dollars a barrel.

The Toronto Stock Exchange(TSX) hit 15,657.53 points quite close to its September 2014 record of 15,685.13 even though lower gold prices weighed on gold mining company shares. Among the gainers was pipeline stock Trans-Canada Corp. that rose 1.6 percent to an all-time high after Trump signed an executive order putting the Keystone XL pipeline back into play. The market appears to see Trump's policies as pro-growth and pro-business with tax cuts promised.

(January 25) The quite negative Trump policies such as building the wall on the Mexican border and restricting the entrance of people from a number of countries into the US do not seem to counter positive attitudes among investors to Trump policies. Indeed, Trump's anti-environmentalist moves are no doubt thought of as positive for corporate profits. Trump has placed a gag order on several government agencies including the EPA. The EPA has also been asked to freeze all grants, contracts, and other agreements until further notice. Meanwhile Canadian PM Justin Trudeau has applauded Trump's approval of the Keystone XL restoration.

Trump's withdrawal from the Trans-Pacific Partnership (TPP) and his move to renegotiate the North American Free Trade Agreement have not caused markets to turn negative. Perhaps investors believe that any new trade agreements Trump negotiates will not be against business interests. Given the make-up of Trump's administration that seems a plausible viewpoint in spite of all Trump's anti-establishment rhetoric.