I’ve written about ‘Trump Trade’ before – that is the stocks and sectors which benefit from a pro-business regime in the White House. But since the presidential inauguration, the decisions coming out of the White House have been anything but pro-business and financial markets are now panicking.
Markets hate uncertainty and with Trump 2.0 there is almost daily uncertainty around tariffs, relationships with key allies and pretty outrageous claims around Greenland, Panama Canal and Canada.
Markets feel uneasy
Trump has become the great disruptor of politics. Some of the things he is doing just seem crazy. But. Europe does need to pull its weight in funding NATO and not just leave it to the Americans. Something does need to be drastically done to cut US government spending to try and bring its budget back into balance and cut government debt, which is costing them $US1 trillion a year in interest.
The question is whether you tackle those big issues with a wrecking ball or with a considered thought-out plan?
Take a look at the reaction of the S&P 500 (the key US markets index) to Trump’s first term as President compared to this second term.
What would Warren do?
I also often write about Warren Buffett, the so-called “Oracle of Omaha”, who is regarded as the best investor in the world … and the bloke is in his 90s. Have a look at the graph below to see what he has been doing as global markets continually broke record highs.
He has been building a significant pile of cash in his investment company Berkshire Hathaway. Waiting for the inevitable market pullback.
“I always say you should get greedy when others are fearful and fearful when others are greedy,” is one of his great investment pearls of wisdom. Think about it. This is one of those little investment gems to live your life by and very appropriate at this stage of the investment cycle.
And he lives by his own advice. Last year’s record-breaking rise in the US stock market saw investors get greedy and push listed company valuations to unrealistic levels. So, he went to cash and took profits at those unrealistic levels.
Now he’s waiting for the market to crash and take advantage of people’s fear as they sell out and valuations drop to realistic levels, or below.
Beyond the headlines
The issue now is whether this correction, since Trump’s inauguration, is the start of a longer, more sustained pullback with all the speculation of a US economic recession.
I know the headlines of this week have been pretty grim but remember the US market is back to about where it was on the US election day in November.
I also think the next chart puts it in perspective as well. March has always been a bad month for the sharemarket. The chart combines the monthly performance over a year of the US sharemarket for the last 20 years.
As always, it seems, we’re at the bottom for the year. Or is this year going to be different? The next month will be an important determinant on whether sharemarkets bounce back and revert to the 20-year norm … or not.
Sorry, I know it’s a bit cheeky. But this bumper sticker in the US made me laugh:
