Business Leaders Concerned About Trump’s Policies
There is growing concern among business leaders and Wall Street strategists about President Donald Trump’s protectionist policies and unpredictable nature, and the potential impact on the markets and economy. However, the actions of investors tell a different story. The Dow, S&P 500, and Nasdaq reached all-time highs on Friday.
Furthermore, the Russell 2000, an index of small company stocks primarily operating in the U.S., is close to reaching its all-time high following the Trump market frenzy of last December. These indicators suggest that investors are not as worried about Trump as the rhetoric surrounding his presidency suggests.
The VIX (Volatility Index), commonly known as Wall Street’s fear gauge, is down almost 25% this year, indicating that investors are not as afraid as they should be if Trump’s policies were truly alarming. CNNMoney’s Fear & Greed Index, which examines the VIX and other measures of investor sentiment, also suggests a sense of greed and is nearing extreme levels.
However, Trump’s tendency to tweet about matters that have no real impact on the economy persists, despite the fact that Nordstrom investors have actually benefited despite his public criticism of the company for dropping his daughter Ivanka’s brand.
Nevertheless, one major reason for the recent surge in stocks is the anticipation of Trump’s promised “phenomenal” tax plan. Additionally, Trump reiterated his commitment to investing in infrastructure during a meeting with airline CEOs on Thursday. These are the messages the market wants to hear.
Matt Lockridge, manager of the Westwood Small Cap Value Fund, expects fiscal stimulus, lower taxes, and reduced regulation to positively impact companies heavily reliant on the American market. He recommends stocks in various industries such as movie theater owner Masco, snack food firm J&J, and aerospace equipment company Kaman.
Barry James, president and CEO of James Investment Research, also remains optimistic about small U.S. stocks that could benefit from Trump’s policies. He purchased iShares Russell 2000 ETF the day after the election, confident that Trump’s stimulus plan will boost growth for American small businesses. James believes that Vonage, Aaron’s, and Big Lots could thrive if Trump’s proposals materialize.
Another reason for the U.S. markets reaching all-time highs is the perception of relative stability compared to other regions. Europe’s economy is uncertain due to Brexit, the rise of populism in France, and ongoing concerns about Greece’s debt crisis. Japan’s economy remains stagnant, and China’s growth is slowing.
Analysts at Fitch, a bond rating firm, acknowledge that certain elements of Trump’s economic agenda could foster growth. However, they note that the balance of risks suggests a less favorable global outcome. Trump’s bombastic nature and tendency to criticize companies on Twitter could undermine investor confidence. His proposed travel ban and plans for tariffs and border-adjusted taxes also create uncertainty and may lead to trade disputes.
However, investors still seem hopeful that the benefits of Trump’s pro-growth stimulus plans and tax cuts will outweigh the negative impact of isolationism. Despite reservations about the president’s actions, investors are still purchasing stocks.
CNNMoney (New York) First published February 10, 2017: 11:55 AM ET
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