President-elect Donald Trump’s fiscal policies will provide a welcome boost to the US economy, according to Royal London Asset Management.
Trevor Geetham, head of multi-asset, and Hiroki Hashimoto senior quantitative analyst, at the asset management group say they have already seen an acceleration in global growth thanks to low interest rates and low energy prices. However, so-called ‘Trumpflation’ – Mr Trump’s reflationary fiscal approach – is expected to provide a further boost to US economic growth.
In terms of asset allocation, Mr Geetham and Mr Hashimoto currently prefer stocks to bonds but, arguing that many of them are already overbought said they are “not chasing the rally”.
They particularly favour Japanese equities as historically Japanese stocks have tended to outperform when the dollar is high.
The US market summer doldrums are “well and truly over”, with US equity markets now recording new highs, they said. US markets typically perform well between October and April because of the seasonality of spending between Black Friday and Christmas.
Royal London's analysts also said they expect central banks to keep fiscal policy loose, which should be positive for equities.
“While Fed rate hikes have the potential to rattle stocks in the short term, we don’t expect aggressive tightening and continue to see a positive outlook for the asset class,” Mr Geetham and Mr Hashimoto said in their report.
However, while Royal London’s analysts are positive on Trumpenomics, they admitted there “remain many important unknowns” as to how a Trump presidency will operate and expect “periodic setbacks”.
“With our investor sentiment indicator now at euphoric levels, we are minded to trim exposure rather than chase the rally in the near term,” they said.
Commenting on the research, Danny Cox, head of communications at Hargreaves Lansdown, warned investors against making split-second decisions based on Mr Trump's policies.
“As always with markets there are a number of moving parts," he said. "US Equities are pushing ahead on the promise of pro-business promises from Trump and this risk-on period has seen the gold price fall over $200 and a sell off in the bond markets."
“UK markets are obsessed with every economic indicator which might paint how rosy or otherwise the Brexit might be, and even the anticipation of production caps in the Middle East are boosting the oil price and companies accordingly.
“Weaker sterling will import inflation, particularly if the oil price recovery is maintained which will feed into inflation and dampen consumer spending.
“Where does this leave the investor and adviser? Well, the song remains the same. Investors shouldn’t be making rash decisions with their investments ahead of every large or small macro event. Stick to great fund managers, invest for the long term in a balanced portfolio and you will be rewarded.”