The Hindu Business Line

Forecasts may go haywire if Trump doesn’t fulfil poll promises

- BLOOMBERG

It’s a good thing that Wall Street analysts didn’t finish up their year-ahead outlooks prior to the US Presidenti­al election, because in the words of Deutsche Bank AG’s Chief US Economist Joe LaVorgna, Donald Trump is “a game changer.”

Year-end reports

At the end of each year, Wall Street firms publish outlooks for the next 12 months. While it is already difficult to forecast what the S&P 500 Index, for instance, will be trading at in roughly 365 days, having a regime change in Washington makes things even more complicate­d.

Just ask Goldman Sachs Group Inc, which was stopped out of five of its six top trade ideas last year before Valentines Day.

“We can’t recall a time when a

Analysts are doing their best to hedge their calls

change in leadership in Washington had the potential for such large and diverging effects on the US economy,” Bank of America Merrill Lynch analysts said in a recent note.

Strategist­s are thus doing their best to hedge their calls, with JPMorgan Chase & Co’s equity outlook saying, “Due to uncertaint­ies, these impacts (Trump’s campaign promises) are not incorporat­ed into our base case earnings forecast until there is more clarity around which policies will be emphasised and/or are politicall­y feasible”

But given the market’s forward looking nature, that uncertaint­y hasn’t stopped a number of banks from at least trying to calculate what a Trump administra­tion will do to their respective areas of coverage.

Equities

Stocks, some sectors in particular, have rallied to new highs following Trump’s win. In their outlooks for 2017, a number of analysts attempted to gauge which sectors would see the biggest boosts.

Deutsche Bank: “If the corporate tax rate is cut to 25 per cent, all else the same, it would boost S&P earnings by $10 and support an S&P rally to 2,300 and 2,400 by 2017 end.”

JPMorgan Chase & Co: “We estimate that Trumps corporate tax plan, which incorporat­es a 15per cent statutory federal tax rate, would add roughly $15 to S&P 500 earnings.” BNP Paribas: “After lagging since 2013, US small caps may face more favourable fundamenta­l trends than their larger peers under Trump administra­tion.”

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