The Trump trade is well and truly over, replaced by the Trump dump.
Where once Wall Street would cheer Trump's pro business agenda — principally increased infrastructure spending and lower corporate taxes — now they are crying into their ETFs as an increasingly unhinged and unleashed President sends world stock markets lower with his unpredictable Tweets and policies.
Overnight, the U.S. stock market took unkindly to Trump's Twitter assault on Amazon. It seems nothing more than a revenge attack on Jeff Bezos, who also owns The Washington Post, a newspaper that has a long history of calling American politicians to account. The revolving-door circus that has become the Trump presidency is giving the Post plenty of ammunition.
With the stroke of a pen, executive orders allow the President to enact laws as he deems fit. Witness the speed with which aluminium and steel tariffs were imposed on the world, something that has already kicked off a trade war between the US and China.
Trump unleashed
Now that more moderate aides have either quit or been booted from the Trump administration, the President is more unleashed than ever with the potential to turn impulsive late night tweets into law with frightening speed. As The Washington Post itself said a few days ago…
"Fourteen months into the job, Trump is increasingly defiant and singularly directing his administration with the same rapid and brutal style he honed leading his real estate and branding empire."
No wonder the Amazon share price fell more than 5 per cent overnight. And the Nasdaq plunged 2.7 per cent, dragging the tech-heavy index into official correction territory — down more than 10 per cent from its record high in early March.
At one stage, the Dow was down more than 700 points before ending the day about 460 points lower.
The S&P 500 closed below its average price for the past 200 days for the first time since June 2016. The index is now lower by more than 10 per cent from its January record.
Fearing the Bear
The bear is sharpening its claws. Investors are dumping momentum stocks. The gold price is on the rise. ETFs have seen the first back-to-back monthly outflows since the financial crisis.
Not surprisingly, the ASX has followed Wall Street lower, although not nearly to the same extent. Local politicians may be on the nose, but none are Trump, and none have his sweeping law-making powers.
The euphoria that was early January has well and truly evaporated. The S&P/ASX 200 Index has shed 5.5 per cent so far this year. The big four banks continue to trade at or close to 52-week lows. With limited future growth prospects and premium valuations, the road ahead for the big four banks continues to look bleak. Bargain hunters beware.
As ever, during times of uncertainty, my advice stays the same.
- Keep a cool head. You don't need to sell anything.
- Keep an eye out for a bargain.
- When markets are lower, add to your favourite stocks. Do it regularly, regardless of the state of the stock market.
- Time is your greatest friend.
True stock market crashes are few and far between. Corrections come along roughly once a year. US markets have corrected. The ASX is merely half way to a correction. There is both nothing to panic about, nor anything to get excited about.
As you were…
Bruce Jackson is the founder of The Capital Club . This article was originally published here.
