Optimism among S&P 500 CEOs as Trump takes power
SAN FRANCISCO (Reuters) – US President Donald Trump’s administration was only hours old, but already a small parade of S&P 500 companies’ chiefs had voiced optimism that his promised tax cuts, stimulus spending and deregulation will boost corporate profits.
In the days ahead of Friday’s inauguration, senior executives from Morgan Stanley, Delta Air Lines and other major US corporations said the Trump White House had already sparked a brighter outlook for business.
“There is certainly more reason to be optimistic as we enter 2017 than there was at the beginning of 2016,” Morgan Stanley CEO James Gorman said last Tuesday after his bank said profit doubled in the fourth quarter. He pointed to factors including a surge in consumer confidence after the November 8 election and lower taxes promised by Trump.
Just under way, fourth-quarter earnings reporting season is providing a glimpse of what major large companies expect under Trump, and their take is largely positive so far.
More than a dozen S&P 500 companies that reported results over the last week signaled optimism about potential tax cuts, infrastructure spending, employee-benefit costs and reduced regulation.
With corporate earnings already on the mend after a slump in oil prices and a strong dollar last year, S&P 500 companies are expected on average to grow their earnings by 6.3% in the December quarter and 13.6% in the March quarter, according to Thomson Reuters I/B/E/S.
Since the November election, the S&P 500 has rallied 6% to record highs, in part due to expectations Trump will pass policies that stimulate the economy. Banks have led gains, with investors betting Trump will roll back regulations passed by president Barack Obama following the 2008 financial crisis, which many investors say went too far.
After United Continental Holdings last Tuesday posted lower December-quarter profits, airline president Scott Kirby told analysts on a call: “It feels like we are on a really good path. It felt to me like there was an inflection point after the election for business demand.”
An also upbeat Delta Air Lines chief executive Ed Bastian this month told analysts he was excited about potential infrastructure spending promised by Trump, as well as a chance to make his case about unfair competition from Middle Eastern airlines heavily subsidized by governments.
Vince Delie, the chief executive of F.N.B., which own First National Bank, said on a quarterly conference call last Thursday that he saw more confidence among commercial customers and a potential pickup in lending.
“There are at least conversations occurring about larger capex [capital expenditure] opportunities within our customer base, which didn’t happen before,” Delie said.
Not everyone is over the moon, however. Kansas City Southern CEO Patrick Ottensmeyer last Friday bemoaned an uncertain environment after the cross-border railroad reported lower quarterly profits, hurt by a slump in Mexico’s peso since Trump’s election.
“Obviously the political and economic uncertainty is probably first and foremost on most of our minds, and the irony of us reporting earnings on the Inauguration Day of the 45th president is not entirely lost on us,” he told analysts.
Indeed, some business leaders and lobbyists in Washington who were initially enthusiastic about Trump’s victory have begun to exhibit some hesitance over his agenda amid confusing messages on health care, taxes and trade.
SURGING CONFIDENCE
Still, while Trump’s views on immigration and a range of other issues are at odd with many Americans, most small businesses and consumers do see a brighter future as he launches his presidency.
An index of small business confidence in December hit a 12-year high, according to the National Federation of Independent Business.
The US consumer-confidence index in December hit its highest level since August 2001, a month before the September 11 terrorist attacks.
Following strong stock gains in November and December, many on Wall Street are concerned that Trump may fail to deliver on all of his promises. A Republican-controlled Congress might balk at infrastructure spending or tax reductions that significantly widen the federal budget deficit.
Other investors worry that Trump could follow through on campaign-trail threats to tear up global trade deals and crack down on illegal immigrants from Mexico who provide low-wage labor in agriculture, restaurants and other industries.
“Folks are potentially underestimating the degree to which Trump is serious about real reform on trade an immigration,” BMO Global Asset Management senior investment strategist Jon Adams said. “Investors, in general, are hopeful Trump will take a more pragmatic approach on those issues.”
Over the past two months, Trump has publicly targeted and threatened a range of multinationals, including Ford Motor, General Motors, Boeing Co. and Lockheed Martin. That may have left CEOs wary of publicly disagreeing with his policies.
“You don’t want to step on a mine,” said Robert Pavlik, the chief market strategist at Boston Private Wealth in New York. “So the best course of action is to be somewhat optimistic, positive but also somewhat noncommittal, so you’re not trapped one way or another.”
Trump’s frequent use of Twitter to single out companies for criticism or praise has created volatile spikes in trading of their shares, which is good for online brokers such as Charles Schwab and TD Ameritrade.
“Each time, it’s a new market event and a potential trading opportunity for our clients. Like everyone else, we’re watching it with interest,” TD Ameritrade director of finance Jeff Goeser said on a conference call last Wednesday after the company reported an increase in quarterly profits.