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Wall Street Gives Trump's First 100 Days a Passing Grade

The Standard & Poor's 500 index is up nearly 6 percent in the early days of Trump's administration.
U.S News & World Report
By Brian O'Connell, Contributor | April 17, 2017

The first 100 days of a presidential administration has long been considered a benchmark for presidential performance. And as the Trump White House approaches the 100-day point, Wall Street is giving passing grades to the populist president. The Standard & Poor's 500 index is up nearly 6 percent since Trump took office. And interestingly, the market is being carried by sectors that were not expected to get a boost from a Trump White House. From a sector perspective, financials - often tied in as a potential sector winner in a Trump presidency - were up only modestly, signaling a pause in interest rates from rising further and doubt surfacing about regulatory reform, says Mason Williams, chief investment officer at Coral Gables Trust Co., a South Florida-based wealth management firm. "Financials were one of the worst-performing sectors in the month of March, reversing enthusiasm that prevailed post-election," he says. "Dividend safety sectors, like utilities and consumer staples, were supposed to be left behind; however, both sectors actually marginally outperformed the broader S&P 500, illustrating that investors are not 100 percent convinced that the administration will succeed on every single agenda item - both in substance and timeliness."

From an asset class perspective, so-called "pro-Trump" small-capitalization stocks and funds barely registered a positive return after a large fourth-quarter outperformance, Williams says. "It is too early to tell if the sector is going through a healthy consolidation, or if it is a start of a correction," he says. "The speed at which tax and regulatory reform passes will ultimately determine if the small-cap arena continues higher in the back half of the year." Going forward, areas of the market that are poised to perform well are the financial sector (which will follow higher interest rates), industrials (based on favorable trade deals and tax repatriation) and energy sectors (thanks to Trump's pro-drill and pipeline expansion policies), Williams says. "Small- and mid-cap should benefit if tax reform is passed as the lion's share of corporate tax are paid by these companies," he says. "Companies with a large amount of profits stuck overseas will benefit from tax repatriation by bringing those earnings back to the U.S. for corporate expansion in the U.S." Additionally, infrastructure investments should perform well on any spending bill that benefits the rebuilding efforts of the country's aging and dated infrastructure system, he adds.

Even though those "most favored" stock sectors haven't caught fire yet, eventually the economic policies boosted by the Trump administration should push them upward. "Within the first 100 days of Trump's presidency, banking stocks are very much in favor due to proposed deregulation of financial industry," says Stephan Unger, an economics professor at Saint Anselm College in New Hampshire. Due to the Trump's administration's policy regarding banking deregulation, Unger says banking stocks are likely to be "positively affected" since fewer capital requirements will allow them to pick up more business opportunities and reinforce proprietary trading. "In the case of a successful implementation of a general tax cut, the retail and consumer industries are likely to benefit from increasing purchasing power of consumers," he says.

Unger says industries related to fossil fuel should experience a revival due to executive orders for projects such as the Keystone XL pipeline. "Also, the coal industry is currently seeing a major hype," he says. "On the contrary, industries such as drugs and pharmaceuticals are not in favor of the current administration, since one key issue is the lowering of drug sale prices, which will have a negative effect on revenue. Furthermore, renewable energy companies are also facing hard times due to shifted priorities of the current administration." Recent events in Syria and North Korea might shift market sentiment toward companies engaged in the production of defense systems or military equipment, Unger says. "The reason is that an increased appearance of combat units at geostrategic locations such as the South China Sea or the eastern Mediterranean Sea indicates increasing geopolitical tensions affecting the necessity and therefore the demand-side of military equipment production," Unger says.

That "gradual" effect should accelerate once the Trump White House firms up its staffing levels (this has moved at a snail's pace in the first 100 days of the Trump presidency). "The early Trump administration and its impact on the market can best be summarized by the belief that fiscal policy will go from restrictive to accommodating, as Trump appointees replace Obama personnel," says Steve Massocca, managing director at Wedbush Securities, headquartered in Los Angeles. "Further, with the economy improving, monetary policy is about to go from overly accommodating to neutral at best. This has created great demand for high-growth equities that might benefit from improving growth, but will not be impacted by higher interest rates." Massocca says several technology names that typically benefit from an improving economy and also typically have little debt have had a remarkable first quarter. "The Nasdaq composite is up almost 9 percent year to date, and diving deeper into hyper growth, land both the Nasdaq Internet index and the Global X Social Media index (ticker: SOCL) are up 14 percent year to date," he says.

One anomaly in Trump's first 100 days in is energy stocks. "One would think from all of the positive talk and action from the new administration that energy stocks would be trading higher, when in fact they are one of the worst groups year to date," Massocca says. "The feeling is that because the environment has changed and become more accommodating, that production will increase that will result in commodity prices declining and ultimately impairing the profitability of energy concerns. As seemingly always with Trump, the stock market is swirling with rumors, media headlines and no shortage of volatility, especially the emotional kind that wears investors out over the long haul. But 100 days into a Trump presidency, the stock market is performing well, a scenario most industry observers say is likely to continue.

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