Synchronisation No More?
US stocks were higher on Tuesday, with both the S&P 500 and the Nasdaq rising 0.5% and the Dow Jones gaining about points 170 points.
On his first day in office yesterday, Trump took several steps to advance his agenda but refrained from immediately imposing tariffs, as many had anticipated.
Traders are now shifting their focus to growth prospects under the new administration and corporate earnings reports from major companies.
Charles Schwab (5%) and Prologis (1.6%) beat on both earnings and revenue and earnings from 3M (6.4%).
H - Welcome to the world of finance. Here’s something to get you started.
On inauguration day eight years ago, the Washington Post published a story at noon (as Trump was being sworn in) with the headline, The campaign to impeach President Trump has begun.
Much of the next three years was under the cloud of impeachment threats.
The actual impeachment vote in the House didn't come until December 19, 2019, which was just six days after the Trump administration's successful execution of the "Phase 1" trade agreement with China (which, by design, existentially threatened China's ability to manipulate global economic advantage).
The Senate impeachment trial started a month later, and ended on February 5th (2020) in acquittal. And then a month later, a global pandemic was declared, originating from China.
Despite all of this, and a multi-year trade war, the three years of Trump 1.0, prior to covid, resulted in an economy that grew at an average of 2.7% annualised (the best three-year average growth since 2007), with an average of just 1.7% inflation (PCE).
Fast forward to today, and the second Trump term is now underway.
Good news: No impeachments, so far.
That said, a key part of the agenda includes cleaning house of the entrenched bureaucratic resistance. If successful, that should minimise the obstruction against executing the Trump agenda;
pro-growth,
pro-business,
pro-national interests.
That puts America in sharp contrast to the rest of the world, which is fresh incentive for global capital to flow into the American economy (good for the dollar, good for Treasury demand and good for stocks).
We're already starting to see it, with Japanese investor Masa Son visiting the White House to announce a deal to invest as much as $500 billion on AI infrastructure in the U.S.
Building on our previous discussions, global policymaking has been intentionally synchronised in the post-pandemic era (even much of the post-Global Financial Crisis era).
But that synchronisation has broken, with the populist political shakeup in the U.S. On that note, we looked at this chart of business optimism last month (U.S. relative to Europe) (here).
What's reflected in this chart above? The U.S. is now pursuing cheap and abundant energy, scrapping stifling regulations and cutting taxes. Europe is doing the opposite.
But it's not reflected in this next chart … yet.
Both U.S. and German stocks sit on record highs.
Great point, as always! Problem is, as you have described many times, this synchronised policy between global Central Banks has provided much needed liquidity for the emission of US government debt despite the inflationary environment, rate hikes & QE/not QE... key is going to be able to understand what levers will work going forward: I'm leaning towards more entrenched capital controls & financial repression, but am happy to be educated there :)