Investors are looking past the headlines
Markets hate uncertainty. It is one of the oldest saws in finance.
Yet even as a series of political scandals flare up in President Donald Trump’s nascent administration, raising questions about his ability to pursue an investor-friendly agenda of tax cuts, deregulation and fiscal spending, the stock market just roars ahead.
Over the past two weeks, with the president’s immigration policies and Russia ties dominating headlines, the benchmark Standard & Poor’s 500-stock index has been setting new highs regularly.
For the most part, the stumbles by the administration have not been related to promises that Trump made — and that investors embraced — to recharge an economy that most economists believe is growing at subpar levels.
Still, that investors have chosen to ignore the chaos in Washington highlights just how deep is the belief (others might consider it wishful thinking) that Trump, at his root, is a president who will deliver market-friendly policies.
“I fully get the euphoria — there has probably never been a more businessfriendly president,” said Adrian Helfert, the head of global fixed income at Amundi Smith Breeden. “Lower taxes and less regulations are good for corporations and equity holders.”
Since Election Day, the S&P 500 index is up more than 9 percent, and with money continuing to pour into stocks from bond and money market funds, the bull market is showing few signs of letting up.
On Wednesday, stocks continued their run for a seventh consecutive session — the longest winning streak since September 2013, according to Bloomberg data. The S&P 500 gained 0.5 percent, led by health care and financial stocks.
But as the markets climb and corporate borrowing rates remain historically low, Helfert worries that investors are taking too lightly the possible pitfalls of this high-risk, high-return Trump presidency.
“He is pulling out all the stops,” he said, “and I just don’t think that investors are being compensated for the downside risks.”
Helfert points to the VIX index, or Wall Street’s “fear gauge,” which measures the expectations investors have that markets will convulse sharply in the future. Since Trump became president, the index has been trading at very low levels, unperturbed by political histrionics.
Indeed, it has been a source of confusion and curiosity for many market analysts that the most volatile president in recent memory is now presiding over a market that has been largely free of volatility since mid-November.
Of course, it is also true that a market that goes up for a sustained period, without the wild swings that have characterized past run-ups, will not set off volatility alarm bells.