US Equities fund manager and head of US Mid and Small Cap Equities at Schroders respectively, Ward and Jones are concerned about the haste with which the market has moved, but argue there are opportunities in areas like tech and regional banks.
“Trump represents a tremendous amount of uncertainty,” argues Ward, but “The market seems to be interpreting all the positives with respect to Trump’s fiscal impulse but none of the negatives. What with the tariffs, the wall building – I would love to say he’s been more moderate, but he has a Twitter account.”
One obvious consequence of the market’s discounting of Trump is the massive spike in certain sectors, including commodities, construction, financials and mining. But the degree to which the market is discounting doesn’t match up with the economic data, according to Ward.
“Some of these copper stocks look like they’re discounting GDP of two times moving forward. While the health of the US economy is reasonably good, the consumer is in good shape with inflecting wages and data from the industrial sector has improved, if all goes well, we are only looking at 60 to 70 basis points of baseline GDP growth.”
Jones agreed that the rapid jump in price for many companies was unwarranted.
“A lot of these companies rose too quickly too soon,” she said. “Consumer companies went up quite significantly, as did a lot of domestic industrials, as people assumed that there would be more spending taking place due to repatriation gains under Trump. And some of the infrastructure companies were up 25% to 30% even prior to the election on the back of Trump’s and Hillary Clinton’s fiscal policies. Only time will tell whether these pricings are validated.”
And she wasn’t sure that repatriation would necessarily have a positive impact on GDP growth. “We tried that kind of repatriation tactic during the Bush era and it did not bear out in terms of growth to GDP. The trick will be to force companies to spend and invest their repatriated capital,” Jones explained.
However, Jones thinks that the improved performance of regional banks and life insurers post-election was appropriate and long overdue.
