8 March 2018

Always look on the bright side of Trump?

Markets sprung to life in February as volatility picked-up and global equities dropped back to December 2017 levels.


Equities were not the only asset class to come under pressure – sovereign bond yields rose almost universally (bond prices move inversely to yields) and commodities gave back some of their recent gains. Few “risk assets” made it through February without some decline in market value.

The catalyst for this increased volatility was the spike in US wage growth seen in the February jobs data, however investors have since reacted negatively to various other factors, such as less positive economic data and Trump’s economic policy. While investors were happy to look on the bright side of Trump’s policies in 2017 (promises of lower corporate tax and infrastructure investment), investors are becoming increasingly nervous of where the President may be taking the US long term.

Two areas have been causing most concern: firstly, the recently passed budget is extremely ambitious and involves a significant increase in Government debt; secondly, the President appears adamant to impose import tariffs and will no longer have Gary Cohn at his side to dissuade him. Thankfully, markets are driven by the economy and the underlying companies that make up the various indices over the long term but, over shorter periods, politics can and will effect returns.

After a smooth ride in 2017, global markets in 2018 have been far more volatile. The next major data point that markets are focusing on is the US jobs data covering February that is due on Friday this week. All eyes will again be on the wage inflation figure to see if the step-up in February is turning into a longer term issue or was merely a blip. In the event that a trend of higher inflation does materialise it is likely that 2018 will continue to be a bumpy ride. As always, it is worth reiterating that volatility presents opportunities to investors that have the conviction to take a long term view.

Meanwhile, in Venezuela, the government is preparing to launch a cryptocurrency… we will not be taking part.


Fred Mahon manages JM Finn’s Coleman Street Investments Service


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