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Investment News - Healthy Obsessions

Research  |  07th February 2017

After a powerful post-election rally, the market’s honeymoon with President Trump is looking fragile. In the month following the election, US equities rose ~6%. Since then they have traded sideways. The new leader’s rhetoric has shifted from Trump the big spender “rebuild our highways, bridges, tunnels, airports, schools, hospitals” to Trump the protectionist “Nafta has been a terrible deal, a total disaster for the United States from its inception”.

  • The Trump rally looks vulnerable, particularly as policy chatter shifts from
    building bridges to building barriers. More importantly in our opinion is
    the high bar for economic newsflow to continue to impress.
  • Parsing tweets to sniff out the next equity sell-off can easily become an
    unhealthy obsession. There have been 24 sell-offs >5% since 2000, about
    1.5 per annum. Attempting to massage portfolios for these gyrations can
    be an unhelpful distraction in our view.
  • Conversely, a far healthier obsession is attempting to identify the next
    bear market, of which there have been two since 2000. Accordingly our
    focus in 2017 lies with monitoring two risks: 1. global economic downturn
    and 2. an acceleration in Federal Reserve policy tightening.
  • The New Zealand election date has been fixed at Saturday 23rd September.
    Current polling suggests the outcome will be tight, something we don’t
    think is yet on investor radars. Prior changes in Government have been a
    catalyst for equity weakness over ensuing months.

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