One year on from the election of President Trump and markets have continued to defy many investors’ expectations of a slump, however professional investors suggest the man in the White House is no the main driver of returns.
Donald Trump was elected the 45th President of the United States on 8 November 2016.
Since then investors have seen record highs in many stock exchanges around the world, despite concerns over his economic policies. US equities have delivered a 15 per cent rise since last year.
However professional investors pointed to an improving economic outlook globally as the root cause, rather than anything Mr Trump had done since entering the White House.
“Much of [the stock market gains] have been driven by an improving global economic backdrop, particularly in Europe and Asia where we have seen strong growth,” said Tom Stevenson, investment director for Personal Investing at Fidelity International.
“Had you set up and held a well-diversified equity portfolio, as our analysis shows, it would have delivered respectable returns over the past 12 months. The gains from shares have more than made up for any losses from bonds, as the interest rate environment has tightened.”
Figures for the last twelve months show that European equities have outperformed the US market, delivering a return of 22.63 per cent since Trump became president. Asia Pacific equities have followed closely behind, returning 20.36 per cent over the same period.
Even emerging markets have had a surprisingly strong year, despite Mr Trump’s protectionist policies, and delivered a 19.79 per cent return.
Nadia Grant, head of US equities at Columbia Threadneedle Investments, said that the US economy is growing at a “muted but steady pace with no exuberance to derail its path”.
Corporate earnings are currently being fuelled not only by a sound domestic backdrop, but also a synchronized global recovery fuelling demand for US goods internationally. With about 35 per cent of earnings derived from overseas, the consensus therefore estimates US earnings will grow above 10 per cent in 2017 and 2018.
She added that, with Congress likely to pass tax reforms decreasing corporate tax rates, domestically focussed US companies such as banks, industrials and material stocks might lead the index going forward, as they would benefit from the change.She described the US equity market as “inexpensive”.
"The fundamental backdrop for US equities is robust with and without the above, as we have seen strong corporate profits growth in 2017. This is set to continue next year with global growth picking up. As the political process is difficult to predict, and 2016 reminded us that it can deliver surprises, we believe a balanced approach to portfolio construction will be key for investors,” she said.
However, experts at FundCalibre pointed out that the dollar has continued to weaken in the last twelve months, with inflation still a concern and infrastructure plans scaled back.
Darius McDermott, the managing director of Chelsea Financial and Fund Calibre said that investors should proceed with caution and expect lower returns, though small and mid caps could do well.
His suggestion for funds to invest in included Hermes US SMID Equity, which invests in smaller and medium-sized companies that would benefit the most from a corporate tax cut, as well as Axa Framlington’s American Growth fund, which has a bias towards mid caps.
Financial adviser Scott Gallacher, from Rowley Turton, said that US stocks had had a good year, though added that charts suggest that this performance has less to do with Trump, and more to do with sustained growth in the market that also continued through Obama’s presidency.
“Overall I'd say I was slightly optimistic on US stocks,” he said.
“P/E levels are higher than average but earnings are growing; consequently a slightly higher P/E level is not an immediate concern.
"There are elements of the market where this isn't the case, i.e. the FANG (Facebook, Twitter, Netflix and Google) stocks as these have very high P/E ratios, and with these there is debate about whether they are over valued or just misunderstood.
"I'd be cautious on the misunderstood argument as this is always the argument for new and expensive companies.”
