Policies start to leave mark on markets
NEW YORK — Markets can’t ignore Washington politics any longer.
Last year, investors calmly brushed aside every surprise that came out of Capitol Hill or the White House. Whether it was President Donald Trump barring the arrival of travelers from certain countries, firing his FBI director or trying repeatedly to overhaul the health care industry, nothing seemed to knock markets off their steady, recordsetting course that lasted through 2017.
Now, though, markets are moving sharply either in anticipation of policy changes or upon their announcement. Stocks recently have zoomed up and down on speculation about whether Trump’s decision to impose tariffs on imported steel will lead to a global trade war. Late last year, Washington approved big tax cuts for businesses, and investors sent stocks surging.
The difference is that Trump’s actions are aimed at what the market cares most about: corporate profits.
“The politics that matter for the market are the ones that impact the fundamentals,” said Stephen Auth, chief investment officer of equities for Federated Investors. “Which politics have moved the market? The tax deal — and now the tariffs.”
It’s easy to see how the tax cuts will affect corporate earnings: Lower tax bills will mean bigger profits, and investors hope the overhaul will encourage companies to spend more to expand their businesses, which would drive future growth.
Analysts now expect S&P 500 earnings to grow 18 percent this year, up from a forecast of 12 percent a few months ago, according to FactSet.
A possible trade war could have just as strong an effect for U.S. companies, but in the opposite direction.
Big U.S. businesses have become reliant on overseas customers, from Apple, which gets 63 percent of its revenue from outside the United States, to Zoetis, an animal-health company that gets just over half from abroad.
If other countries retaliate against the U.S. tariffs, escalating barriers to trade could hurt economies around the world through higher prices and slower growth.