Trump isn’t killing the bull market. Here’s why

Increasingly more enterprise leaders and Wall Road strategists are expressing their worries about what President Donald Trump’s protectionist insurance policies and unpredictable nature would possibly do to the markets and economic system.

However everyone knows that motion speaks louder than phrases. What traders are literally doing is in stark distinction to what persons are saying. The Dow, S&P 500 and Nasdaq hit all-time highs once more on Friday.

And the Russell 2000, an index of small firm shares that are inclined to do most of their enterprise within the U.S., is now only a few factors away from the all-time excessive it hit final December within the wake of Trump market euphoria.

What’s extra, the VIX (VIX), a measure of volatility referred to as Wall Road’s concern gauge, is down practically 25% this 12 months as nicely. If traders had been actually frightened of Trump, the VIX ought to be a lot greater.

And CNNMoney’s personal Worry & Greed Index, which appears on the VIX and 6 different measures of investor sentiment, is displaying indicators of Greed and isn’t removed from Excessive Greed ranges.

In fact, Trump nonetheless can not seem to assist himself from tweeting about issues that, let’s be sincere, will not do something to assist the economic system — though Nordstrom traders are richer regardless of Trump attacking them for dumping his daughter Ivanka’s model.

However to present credit score the place it is due, it appears like the principle cause that shares have taken off once more these days is as a result of Trump has promised to unveil a “phenomenal” tax plan quickly.

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Trump additionally pledged once more to take a position extra on infrastructure when he met with airline CEOs on Thursday.

That is what the market desires to listen to.

“We nonetheless count on fiscal stimulus, decrease taxes and fewer regulation,” mentioned Matt Lockridge, supervisor of the Westwood Small Cap Worth Fund. “The timing is the massive query, however it’s coming.”

Lockridge thinks that many firms that generate a majority of their revenues from America ought to profit if Trump stimulus winds up kicking the economic system into a better gear.

He likes shares in quite a lot of industries, similar to movie show proprietor Masco (MAS), snack meals agency J & J (JJSF) and aerospace gear firm Kaman (KAMN).

One other cash supervisor mentioned he is additionally nonetheless bullish on small U.S. shares that might get a carry from Trump insurance policies.

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Barry James, president and CEO of James Funding Analysis, mentioned he purchased the iShares Russell 2000 ETF (IWM) the day after the election as a result of he is assured Trump’s stimulus plan will enhance progress for U.S small companies.

“When Trump mentioned America first, I actually assume that is what he means,” James mentioned, including that he thinks Web telephone service Vonage (VG), rent-to-own retailer Aaron’s (AAN) and low cost chain Massive Heaps (BIG) might all thrive if Trump’s proposals undergo.

However there’s one more reason why the U.S. markets are close to all-time highs. Regardless of the entire uncertainty in Washington, the U.S. continues to be seen as a paragon of relative stability in comparison with different elements of the world.

Europe’s economic system continues to be a giant wild card because of Brexit, the rise of populism in France resulting in worries a couple of so-called Frexit and extra worries about the issue that by no means appears to go away — Greece’s debt woes.

Japan’s economic system stays stagnant as nicely. We’re speaking about greater than only a misplaced decade now. It is plural. And China’s economic system is slowing down too.

Bond fund supervisor Invoice Gross has usually joked that America is like what Johnny Money and Kris Kristofferson sang about in “Sunday Morning Coming Down” — the “cleanest soiled shirt.”

To that finish, analysts at bond score agency Fitch wrote in a report Friday that “components of President Trump’s financial agenda could be constructive for progress,” however added that “the current steadiness of dangers factors towards a much less benign international consequence.”

In fact, there are two sides to that coin. Trump’s bombast might come again to hang-out him.

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His continued penchant for reprimanding firms that he disagrees with on Twitter might dent investor confidence.

And whereas his proposed journey ban on immigrants from seven largely Muslim international locations has been overturned by the U.S. courtroom system for now, the president has vowed to battle for its reinstatement.

Even when he loses that battle, it is nonetheless clear that Trump is critical on turning extra inward, with plans for tariffs and border-adjusted taxes that might ignite commerce wars with Mexico, China and Japan. That might harm large U.S. multinational corporations and result in job cuts.

However traders nonetheless appear to consider/hope that the deserves of Trump’s pro-growth stimulus plans and tax cuts will outweigh the impression of isolationism. Let’s hope they’re proper.

Traders could also be holding their noses, closing their eyes and stuffing cotton of their ears to drown out the president. However they’re nonetheless shopping for shares.

CNNMoney (New York) First printed February 10, 2017: 11:55 AM ET