De­spite Trump’s claims, U.S. market ‘drag­ging rest of world lower’

The Expositor (Brantford) - - BUSINESS - JONATHAN RAT­NER

As he does most morn­ings, Don­ald Trump took to Twit­ter on Wednesday, this time to take credit for the rally in U.S. eq­ui­ties since the elec­tion.

U.S. Pres­i­dent Trump said the U.S. stock market has in­creased by US$5.2 tril­lion in value since vot­ing day on Novem­ber 8, mark­ing a 25 per cent gain. But as usual, his claims war­rant a lit­tle fact check­ing.

“It would be re­ally nice if the Fake News Me­dia would re­port the vir­tu­ally un­prece­dented stock market growth since the elec­tion,” Trump tweeted.

Derek Holt, head of cap­i­tal mar­kets eco­nomics at Sco­tia­bank, pro­vided some con­text, not­ing that while U.S. stock market cap­i­tal­iza­tion is up ap­prox­i­mately 19 per cent, global equity market cap­i­tal­iza­tion has risen 33 per cent.

As for Trump’s US$5.2 tril­lion fig­ure, it’s a bit high, with Holt not­ing that ag­gre­gate U.S. stock market cap­i­tal­iza­tion is up US$4.4 tril­lion since the elec­tion. The world’s equity market cap is up US$21.8 tril­lion.

Re­mov­ing the U.S. from the equa­tion, the rest of the world’s market cap has climbed 41.6 per cent in the post-elec­tion pe­riod, or roughly US$17.2 tril­lion.

In other words, “the U.S. market is drag­ging the rest of the world in­dex lower,” Holt told clients.

Fac­tor­ing in move­ments in the U.S. dol­lar since the elec­tion, the econ­o­mist noted that U.S. stocks have un­der­per­formed the rest of the world by a sub­stan­tial mar­gin. That trend may gain more mo­men­tum if the Trump ad­min­is­tra­tion is un­able to push through tax re­forms that al­ready ap­pear to be priced into the market.

The Pres­i­dent has promised that stock per­for­mance “will grow by leaps and bounds” if tax re­forms are passed, yet U.S. equity val­u­a­tions are al­ready es­sen­tially at an all-time high based on the Shiller 10-year P/E Ra­tio, with only 1929 and the dot-com era be­ing higher.

Holt laid out some sce­nar­ios whereby U.S. stock per­for­mance could have been bet­ter on a rel­a­tive ba­sis: If the Fed­eral Re­serve wasn’t the only ma­jor cen­tral bank to have made mean­ing­ful rate hikes, or if global in­vestors were less con­cerned about iso­la­tion­ist poli­cies from the Trump ad­min­is­tra­tion, along with fail­ures in Con­gress and the el­e­va­tion of var­i­ous geopo­lit­i­cal risks.

“Per­haps 2018 will bring more ro­ta­tion away from out­per­for­mance across other global equity mar­kets,” Holt said. “Any way you cut it, any equity port­fo­lio man­ager worth his or her salt would view rel­a­tive market per­for­mances as be­ing about myr­iad in­flu­ences.”

MAN­DEL NGAN/GETTY IM­AGES

U.S. Pres­i­dent Don­ald Trump makes his way to board Air Force One be­fore de­part­ing from An­drews Air Force Base, in Mary­land, on Wednesday. Trump is on his way to Penn­syl­va­nia to de­liver a speech on tax re­form.

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