Doubts grow over market’s late Trump-inspired surge
Some fund managers now seeing bonds as safer bet than stocks.
NEW YORK — How much more can the “Trump Bump” lift the stock market?
U.S. stocks have screamed to records since Election Day because investors are expecting Donald Trump’s White House to cut taxes for business, make regulations easier for them and goose more growth out of the economy. But investors around the world are questioning whether the rally is exhausting itself.
The big jump for stocks has come at a time when some investors had already seen markets as overpriced. Plus, skeptics see cause for caution with a president who prides himself on unpredictability. That has some favoring bonds or stocks from other countries over the U.S. stock market.
“When we had the election, there was initially shock,” said Darrell Riley, a vice president at T. Rowe Price who helps set the strategy for how $240 billion in target-date retirement and other mutual funds are invested. “Investors were really shocked, and then we went into this period of euphoria, and now we’re in a state of confusion.”
Risks have grown large enough that the committee steering T. Rowe Price’s target-date retirement funds and other balanced funds sees stocks as slightly less attractive investments than bonds. It’s the first time that’s been the case since 2000, when the dotcom bubble popped.
The trend has been moving in that direction for years, because stock prices have risen faster than corporate earnings, which makes them look more expensive, said Riley. But it was only a few weeks ago that the committee made the decision to go “underweight” on stocks and favor bonds more instead.
Some of that caution became apparent Friday, with U.S. indexes falling modestly to end the Dow Jones industrial average’s 10-day winning streak.
Besides the high stock prices, another reason for the move was that the pace of change on busi- ness-friendly reforms in Washington will likely be slower than the market expects, Riley said.
“The Trump team can work on only one thing at a time, and they’re spread relatively thin,” he said. “They’re finding that accomplishing what they want to accomplish is far more complex than they probably imagined.”
There are also concerns that tax cuts will come in later than many expect.
Strategists at Goldman put the mood of the market this way: “We are approaching peak optimism.” They forecast the S&P 500 will hit a high in the next month or so but end the year lower than where it is now as investors push back expectations for the timing of the tax cuts.
For now, the prevailing assumption is that Trump will eventually be able to push through lower corporate tax cuts, ease regulations on business and approve some increased infrastructure spending.