It is good to under-promise and over-deliver. Markets, in particular, respond favourably when things turn out better than expected. That, however, is not Donald Trump’s style. He has never knowingly undersold himself.
Ever since Franklin Roosevelt’s first 100 days in office, in which the Depression-era President passed 15 milestone pieces of legislation, the roll-call of achievement in the first three months has become the benchmark of a President’s early success. Having published a list of 10 measures that he would implement in his own first 100 days, which ended on Saturday, President Trump cannot be surprised that he is now being judged on his performance against those campaign promises.
This matters to investors just as much as voters because Donald Trump’s arrival in the White House galvanized financial markets with his promises to cut red tape, reform taxes and spend heavily on infrastructure. Between Election Day and the end of 2016, the S&P 500 index rose by 5pc. By President Trump’s inauguration in January it was 6pc higher and by the end of February it had risen 12pc. Since then, however, the market has moved sideways. The Trump Bump is in danger of morphing into a Trump Slump if the new President doesn’t start to deliver.
So what is the scorecard for the first 100 days? Having published a “Contract with the American Voter” in October, it’s a simple enough test to undertake. Trump’s self-proclaimed “100-day action plan to Make America Great Again” laid out precisely how he should be evaluated. On that basis, he scores, if you’re feeling really generous, one out of ten.
Six months ago, he promised America he would: cut taxes; prevent companies moving offshore; start a $1trn infrastructure spending plan; provide more school choice; repeal Obamacare; make childcare and caring for the aged tax deductible; end illegal immigration with a wall along the Mexican border; stop violent crime; boost the military and, as he put it, drain the swamp.
Of these, he came closest on healthcare reform in as much as a plan was actually introduced to Congress. It was, however, pulled before ever being voted on when defeat became obvious. On the two issues that matter most to stock market investors - tax reform and infrastructure spending - there is even less to show.
Last week’s tax reform road-map was thin on detail and even sketchier on how it would be paid for. The principal idea, reducing the headline rate of corporation tax and simplifying personal taxes, is on the face of it market-positive. But with no hint of how it might be paid for, and America already $19trn in debt, there is next to no chance of the plan getting past the deficit hawks in Congress. Even if it does, the inflationary growth in borrowings it implies would merely trigger a more aggressive rate-tightening cycle from the Federal Reserve.
As for the infrastructure spending plans, Trump is fast running out of time. Building highways, airports, bridges and the like does not happen overnight and with a 40pc approval rating (much lower than recent Presidents at the same juncture) there can be no guarantee that he will have the luxury of eight years in which to deliver these long-gestation projects.
This is not to say that the President has not been busy. He has signed nearly 30 other pieces of legislation and about the same number of executive orders. But these are just expressions of intent or reversals of measures put in place by the previous administration. Like military action overseas, these are really the easy part of being President. The genius of the US Presidential system is that it makes it really hard for a maverick in the White House to do too much damage. It is working as the Founding Fathers hoped it would.
So if the past 100 days have been a disappointment for investors, what might the next 100 hold? There is an old adage that recommends investors “Sell in May and don’t come back ‘til St Leger Day”. Depending on when in May you choose to bail out of the market, it’s about 100 days until the horse race in September that ends the summer doldrums according to this bit of market lore.
There is some evidence that markets do indeed perform better on average during the winter months than they do in the summer. Since 1970 the average gain for the S&P 500 index between November and April has been nearly 9pc while in the summer months from May to October it has been less than 3pc.
Of course, that is not the same thing as saying that the market falls on average over the summer. If you are passing up the opportunity to make 3pc on average over a six month period you need to find an alternative for your savings. Neither cash nor bonds will match that return at the moment. This comparison also disregards the trading costs involved in moving wholesale in and out of the market twice a year.
Another reason to disregard the Sell in May adage is that investors don’t trade in averages. For Sell in May to be useful to investors it would need to be predictable. Our research into the past 20 years shows that, for the UK market, taking the summer off would have made sense exactly half the time. Sell in May worked in ten years and failed in the other ten. It’s a coin toss.
The reality is that 100 days is too short a period from which to draw any meaningful conclusions, whether political or financial. But in investment, as much as in politics, under-promising and over-delivering is the best combination. Hopefully, expectations are low enough to provide that positive surprise this summer.
