Wall Street sees Trump rally coming to an end
Wall Street analysts are pumping the brakes on the Trump stock market rally.
Experts are adjusting their expectations of how long it will take for President Trump to follow through on campaign promises to unlock domestic investment and cut back on regulatory red tape.
Stocks have rallied since Trump’s election, with the Dow Jones Industrial Index reaching unprecedented heights and billions poured into funds that track U.S. stocks.
But financial analysts and other stock traders say a lack of clarity from the administration on economic policies — along with constant distractions in the White House — are delaying key measures to boost the economy.
“People need to be a little more sanguine and not be afraid of missing out, because what they could be missing out on is a major-league correction,” Daniel Alpert, an investment banker and economist, told The Hill. ”That’s a fairly risky position to be in.”
Trump’s pledges to cut regulation, “dismantle” Dodd-Frank, bolster U.S. manufacturing, reform taxes and deliver ambitious economic growth triggered a stock market rally upon his election. The Dow soared past 20,000 points last month after more than doubling its volume under President Obama, and investors have funneled more than $50 billion into U.S. stock funds since the year began.
Trump has already signed executive orders to cut back on existing regulations and review the Dodd-Frank Act; he’s also promised to “clean up” the federal budget.
But Republicans have faced several roadblocks just one month into his presidency, lowering expectations for quick action on legislative priorities like tax reform.
Economists at Goldman Sachs have already lowered their expectations for a Trump administration, despite alumni from the bank leading the Treasury Department and National Economic Council.
Goldman Sachs economists wrote last week that potential benefits from tax and regulatory reform are more likely to be negated by Trump’s immigration and trade restrictions.
“One month into the year, the balance of risks is somewhat less positive in our view,” wrote the Goldman economists. “The difficulty the Republican majority is having addressing [ObamaCare repeal] suggests that lawmakers might ultimately need to scale back their ambitions in other areas as well, such as tax reform.”
David Kostin, Goldman’s chief U.S. market strategist, wrote that the S&P 500 index will start to unwind some of its 10 percent in post-election gains as optimism fades.
“Financial market reconciliation lies ahead,” Kostin wrote.
Trump and his team have embraced the post-election stock market surge, a rare and risky step for a White House. Trump aides boasted on Twitter when the Dow eclipsed 20,000 points last month, and Treasury Secretary Steven Mnuchin told CNBC on Thursday that the stock market is “absolutely” an economic policy report card for the administration.
“There’s a lot of confidence in the Trump administration and in the desire to invest in the U.S.,” Mnuchin said. “This is a very competitive place to do business. We’ve got great companies, and you see that reflected in the markets.”
Mnuchin’s willingness to tie the administration’s success to the stock market could prove politically costly if the post-election rally ends.
Even if Republicans manage to get their agenda moving in Congress, there are budgetary fights ahead that could rattle the markets.
The U.S. is expected to exceed the legal limit on the amount of debt it can hold on March 16. If the debt ceiling isn’t raised, it could trigger a default and a global crisis. Government funding also expires on April 28, which means Republicans will have to agree on some kind of measure to avoid a shutdown.
Steven Blitz, an independent economist, told The Hill that Trump’s agenda could help boost investment in American business and manufacturing if it’s actually implemented. Cheaper capital could boost business spending, stimulating the economy and adding jobs.
But Blitz says there’s little reason for increased hope without anything to support it.
“Any advice has to be prefaced with the caveat that there’s a lot of talk about what’s going to occur, but we have no idea what will occur,” said Blitz. “It’s very hard to build a case for the equity market to move higher from here.”