One of the problems with taking the credit for markets going up is that others might make the same connection when they go down again. A hundred days into his second term, US President Trump seems less interested in treating Wall Street as a barometer of his success, for the obvious reason. It is the worst start to a Presidency, from a US investor’s perspective since Gerald Ford in the 1970s.
There’s no escaping the market’s judgement, so what are the numbers telling us? Since Inauguration Day on 20th January, the MSCI World index has fallen 4 per cent. That’s hardly a disaster but look under the surface and it is clear what’s dragging markets lower. Over the same period, the S&P 500 index is 8 per cent down, while shares in China and other emerging markets, including India, and those in Europe, including the UK, are broadly flat or slightly higher.
Within the out of favour US market, it is the growth-focused shares at either end of the size spectrum that have taken the greatest hit. The smaller companies in the Russell 2000 index have lost 14 per cent of their value in three months while the Magnificent Seven tech stocks have fared even worse in many cases. Nvidia is 21 per cent down, Amazon has lost 17 per cent, Google-owner Alphabet is 19 per cent off and the company most closely associated with Trump, Elon Musk’s Tesla, has lost a third of its market value.
The performance of the technology stocks since January shows that while Presidents, especially ones as busy as Trump, can influence markets, some things are outside their control. The reason why there is only a tenuous link between market performance and the man in the White House or the party he represents is the fact that the starting point for an investment matter as much as what happens while you hold it. Barack Obama entered the White House in the wake of the financial crisis and Joe Biden in the dark days of the pandemic. Trump had the misfortune to catch high tide for US exceptionalism and the end of the artificial intelligence (AI) boom.
Another market truism that has been confirmed by the last 100 days is the importance of portfolio diversification. While shares, the US dollar and the oil price have fallen, bonds have held their own and gold has risen by more than 20 per cent. A balanced portfolio containing a mix of assets has largely shrugged off the political uncertainty. But again, there is a risk of overstating the importance of the Trump presidency to the performance of gold. Arguably the bigger influence has been the freezing of Russia’s dollar-denominated assets in 2022 and the nudge it provided to China, which has since doubled the proportion of its reserves held in the form of gold. Central bank buying rather than unpredictable politics has been the principal driver of the precious metal.
A third lesson from the first three months of the Presidency has been the confirmation that, contrary to early indications, Donald Trump really does care what Wall Street thinks. Markets have been able to rein in the revolutionary zeal of a White House determined to move fast and break things. One of the reasons why markets responded so badly to Trump’s tariff policy was the fear that he had found a way to sidestep Congressional and financial market guard rails. But the ‘Trump put’ that kicked in as bond yields approached 5 per cent and a 10 per cent stock market correction morphed into a 20 per cent technical bear market showed that Mr Market is still a match for President Trump.
The next thing I take away from the first 100 days is how wrong the consensus can be. Wind back to the interregnum between the election and inauguration, and even the first few weeks of the Presidency, and it is striking how few naysayers there were. The tax cuts and deregulation narrative that greeted Trump’s return to Washington was so appealing to investors that no-one seemed to ask if the President might mean what he said about tariffs. I don’t think anyone should have been surprised. He has been singing the same tune for 40 years. Trump is nothing like as inconsistent as his detractors pretend. I believe we should invest in the world as it is and not as we would like it to be.
Too, I believe we should also be prepared for the unexpected. Three months ago, there was broad agreement that an America First agenda would be reflected in continued US market leadership. What few investors could see were the silver linings elsewhere of the President’s belligerent isolationism. The end of the US security backstop for Europe and America’s decision to stop being the consumer of last resort for Chinese exports is a gift to both. Europe standing on its own feet militarily and China prioritising domestic consumption has started to be reflected in the performance of their stock markets.
What will take a lot longer than 100 days to be confirmed is whether this change in the consensus about US exceptionalism is durable. Big swings in market leadership, currency moves, relative performance and suchlike tend to be multi-year events. And a shift in the direction of travel is often triggered by a major event such as the bursting of the dot.com bubble, the Eurozone crisis or the current assault on the post-war trading framework. The US dollar has fallen by 10 per cent since Inauguration Day. It is both a reflection of and the cause of a reversal in the past decade’s increase in foreign ownership of US assets.
The first 100 days of Trump 2.0 have given investors a glimpse of a less US-centric future. And as he often does, Mr Market has also given investors a second chance to position themselves for that outcome. The market rally since Donald Trump’s twin capitulations, on tariffs and the US Federal Reserve, has reduced the pain of rebalancing if you missed the boat in February. A hundred days in, investors should take the repeat opportunity to prepare for the next three and a half years.
Tom Stevenson is an investment director at Fidelity International. The views are his own.
