Most concur that the US economy, that has experienced slow and steady growth since the financial crisis, will now require new catalysts to move further ahead. And financial markets appear to be on the verge of pivoting from being economic data and earnings growth driven to being policy driven in search of these new catalysts. This puts the credibility of the administration front and center.
White House counselor Kellyanne Conway and press secretary Sean Spicer often do not tell the truth. Ex-National security adviser Michael Flynn appears to have been untruthful and even some members of the Republican Caucus appear to be misstating facts. And, of course, President Trump himself states so many falsehoods and erroneous comments with his childish tweets. The thing about dishonest and untrustworthy people is that they are dishonest and untrustworthy with allies as well as enemies.
Furthermore, the failure to pass healthcare reform last week has severely dented the political capital of the incoming administration and now, many are beginning to question the viability of passing tax reform later this year. With politics contaminating economics and given this backdrop, expectations of an imminent correction in financial markets has soared.
Future Wealth’s View
In the book “Art of Authenticity” – Karissa Thacker states “The perception of authenticity can wear away on a charismatic person to reveal someone with character flaws that would have been noticed earlier, if anyone had looked closely enough.” Everyone thought Trump would change after his swearing in but it appears he has simply not changed at all and has instead built a team around him who take pride in emulating him with obtuse statements and contradictions, creating chaos instead of developing policies. With lack of trust at Congress on anything coming from the Administration and even Republican allies on Capitol Hill mindful that Trump could drag them down at any moment with a tweet, it is hard to project how many of the policies and reforms that have been promised will see light of day in the coming months.
The administration’s inability to push through policies that are business friendly could get financial markets to revert back to following economic data and corporate earnings as the guide for further growth, but not without a correction from current levels. Our view is that a correction on expensive stocks with deteriorating fundamentals while those stocks with sound fundamentals remain stable, would be a healthy correction. But things don’t always work out that way, does it?
At Future Wealth, in these uncertain times, we focus on capital preservation while exploring opportunities for growth and appreciation. But, most importantly, we provide downside protection, in our client portfolios, insulating them from a major correction.