Issue of the week: the Trump Dump

Wall Street has fallen out of love with Donald Trump. Could this mark a big turning point for markets?

“Wall Street’s uncritical love affair with Donald Trump is over,” said The Observer. “For five months, traders have swallowed whole the idea that the president would swiftly get a package of tax cuts through a Republicandominated Congress” – giving “a boost” to growth and corporate profits. Yet “the first real test” of Trump’s ability to get lawmakers to do his bidding has been a “disaster”. The resistance on Capitol Hill to the repeal of Obamacare left markets wondering when – indeed, whether – Trump will be able to deliver on his promises. Last week the “Trump Bump” came to an abrupt halt as traders dumped shares: the Dow Jones fell for eight consecutive days, its longest losing streak since August 2011. “It is too early to say that Wall Street has fallen out of love with Donald Trump.” But after last week’s “humiliating” defeat, “the relationship is entering a new and more difficult phase”.

But is this really the end of “the great post-crisis bull market”, asked Merryn Somerset Webb in the FT. Almost everyone agrees that stocks look expensive after “the third-best and the thirdlongest run on record in the US”. But, as Capital Economics points out, “markets don’t just collapse of their own accord. They need a trigger.” Recessions usually do the trick, as do political disasters and fast-rising interest rates; but none of these look “immediately likely”. If anything, growth appears to be picking up in the developed world. The upshot is that although stock markets look “horribly overpriced”, there’s no reason for that to change as long as “nothing particularly awful happens”. Remember, though, that “when markets turn, they turn fast”. There’s nothing wrong in letting “discretion be the better part of valour” and taking profits on markets that are hitting bubble territory. “Let other people wait to see what the trigger is that brings them down.”

Set against the previous gains, the market’s recent falls look minimal, said Nils Pratley in The Guardian. But it’s fair to say the mood is “nervous”. If Trump “is running into political trouble”, will there also be delays to his promised infrastructure splurge? “It’s a fair question, and the answer will be critical for stock markets in the short term.” The “genuine movement” we saw in energy market deregulation this week is good news, said Allister Heath in The Daily Telegraph, “but time is running out for the Trump administration on the economic front”. The president “will need to turbocharge the rest of his agenda” if he wants to keep Wall Street on side. “If major reforms are not pushed through this year, they never will be, and even the president’s diehard supporters in the US business world will desert him.” It’s “crunch time” in Trump’s America.