U.S. Stocks Level Out, But Skepticism Over Trump Administration Remains
Accendo Markets | Jan 25, 2017 12:26
Although stocks crept marginally higher in the US and worldwide on Tuesday, leading banks flag companies that they propose will be most affected if the ‘big border tax’ is implemented in the United States.
It appears as though investors are, at least for the time being, turning something of a blind eye to President Donald Trump's protectionist rhetoric as US stocks performed better on Tuesday 24 January. Moreover, the US dollar rebounded against the euro and the Japanese yen, levelling out recent losses related to the alteration in US government, as bargain hunters intervened by buying back the currency still considered as having the best economic prospects in the developed world.
On account of this, the dollar index, which considers the currency against six of its major rivals, was slightly up at 100.100 on Tuesday. Juan Perez, the currency trader at Tempus Consulting in Washington, explains:
When you take the spotlight more toward Europe and Britain and Brexit, you start looking at the dollar as a better long-term option.
Furthermore, MSCI's world index, which monitors share performance in 46 countries, was up 0.33%, a figure that stresses the beginning of a revival of economic prosperity around the world. US stocks also opened marginally higher on Tuesday morning, despite companies exhibiting mixed quarterly earnings. The S&P 500 index at SPX, +0.72% ascended three points at market closing, or 0.1%, to 2,268. The Dow Jones Industrial Average DJIA, +0.70% climbed nine points to 19,805. Likewise, the Nasdaq Composite, +0.79% gained 14 points at closing, or 0.3%, to 5,567, reflecting a slight turnaround in US economic activity.
However, this does not dispute the fact that investors remain definitively on edge with regards to Trump's plan to renegotiate, or indeed abandon, the North American Free Trade Agreement (NAFTA) with Mexico and Canada, as well as his termination of the Trans-Pacific Partnership (TPP) with Asia. Adam Sarhan, Chief Executive Officer at 50 Park Investments claims,
Whether it is politics, economics or earnings, something needs to show up to give investors another boost of confidence that better times lie ahead.
Moreover, as scepticism around Donald Trump’s potential trade policy continues, strategists at Goldman Sachs (NYSE:GS) and JP Morgan have flagged stocks that will likely suffer the brunt of a high tax on foreign goods. However, although US administration has threatened a border tax that will involve subsidising exports and tax imports, due to the potential difficulties of transitioning into such a system “our economists currently assign a probability of just 30% that this proposal will be enacted” claimed strategists at Goldman Sachs in a mid-January statement.
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Nevertheless, if such changes are passed by Congress, the potential border tax could hit retail merchandisers hardest, the companies most at risk being singled out as Nike (NYSE:NKE), Restoration Hardware (NYSE:RH), Dollar Tree (NASDAQ:DLTR) and VF Corp (NYSE:VFC), according to Goldman Sachs. Likewise, JP Morgan strategists led by Mislav Matejka have issued a warning to investors via the compilation of data surrounding stocks that would suffer most prominently as a result of the anti-trade policies imposed by Trump. The following table exhibits such concerns on behalf of JP Morgan:
Credit: JP Morgan Equity Research
Thus, despite a slight turn around in the US and Global indices by closing on Tuesday, investors remain uneasy with regards to the turbulent Trump administration and the effects it will bear on economic activity both globally and domestically.
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