By Alec Hogg
While preparing for yesterday’s monthly webinar updating the Biznews Global share portfolio, something rather strange struck me.
Those dire predictions of how a Trump Presidency would hammer asset prices all wrong. Sure it’s only a couple weeks, but there’s no doubt Mr Market is seriously infatuated with The Donald. And, displaying his new loyalty perhaps, is being decidedly bitchy to Silicon Valley.
___STEADY_PAYWALL___
Since the billionaire’s shock victory on November 8, the US stock market’s broad measure, the S&P500 index, has gained 5% to a new peak. American share prices have been led higher by its heavyweight banking groups like Bank of America (up 21%), Wells Fargo (15%), Citi (13.6%) and JP Morgan (12.6%).
These stocks have been boosted by Trump’s promise that he will repeal legislation triggered by the Global Financial Crisis to “get the banks lending again.”
After being in free fall between late 20076 and early 2009, banking stocks have been pretty much marking time ever since. A US taxpayer revolt after the Government was forced to bail out big US banks led to the Dodd-Frank legislation, a complicated Act which introduced new regulations, primarily to prevent a collapse of another ”too big to fail” institution.
Dodd-Frank gave the public its revenge while also bringing in fresh consumer protection to stop banks from abusive lending and granting overly generous mortgages. It was enacted in 2010 and most of the regulations have been rolled out.
That makes Trump’s promise rather difficult to fulfil. For one thing, reversing Dodd-Frank will take time. And politicians proposing it will be sure to gauge the court of public opinion where support it far from certain. The GFC wounds are raw while antagonism towards elites, including bankers, is still high.
For shareholders, the surge in banking stocks over the past fortnight offers some respite, but most prices are still less than half where they traded pre-GFC.
It’s far too early to call this a reversal in the trend. What we might be seeing is a grab at the most fragile of straws. Trump has made many grandiose promises to get into the White House. Actually delivering is tales more than an autocue.
On the other hand, Mr Market has also concluded the newly elected President will somehow punish Hillary Clinton-supporting Silicon Valley.
Since the election, share prices of tech giants Apple, Alphabet, Amazon and Facebook have been under pressure. This is partly due to institutional investors rotating into financials, but also because of an assumption the new Leader of the Free World is somehow bad news for firms in liberal California.
In effect, this compounds Mr Market’s error.
No power we have seen, much less a business-friendly new President, can reverse the exponential growth being enjoyed by these four pioneers, each of which enjoys the benefit of scale plus a powerful networking effect.
It is true that during the campaign Trump did call for a boycott of Apple products. He was incensed that the company refused to help FBI investigators unlock the iPhone used by a shooter in a terrorist attack that left 14 people dead and 22 seriously injured.
But Apple’s sales never missed a beat. On the other hand, the group has hundreds of billions in cash abroad, so stands to be among the major beneficiaries of Trump’s sensible proposal to drop punitive tax on US companies repatriating cash.
As usual, Mr Market has over-reacted to the news flow. That’s usually a great time to take advantage. Investors are once again being offered an opportunity. Those who missed out on the US’s Fourth Industrial Revolution businesses in the previous run can now buy their ticket at a reasonable price.
