Last week, the revival in connection with the election trump was continued, the industrial index Dow Jones has exceeded 20 thousand points, and the President left a congratulatory tweet. But how serious this is, and what it means? To what extent this justifies the approach of the new administration’s economic policy? And how long will this rise after the election? The answers to these questions no one knows, to speculate about the behavior of the market is silly, but I remain confident that the markets and the economy will continue its pleasing growth, however, will not last a year.
First, the mark of 20 thousand points the Dow Jones is a meaningless figure, and the fact that he exceeded, means almost nothing. To get hung up on round numbers is numerology, not serious analysis. The Dow Jones is a strange and rather controversial index, which evaluates companies on the prices of their shares, but not their market value. It is extremely limited in the number included for analysis companies, covering 30 of the largest corporations in the United States, and more than 20% increase since election day accounted for Goldman Sachs.
Secondly, as constantly reminded his colleagues in the Clinton administration, Bob Rubin (Bob Rubin), “markets go up, markets go down”, and it is therefore incorrect to judge the course on the immediate market reaction. It is necessary to focus on the fundamental things. It is known that for the last 100 years the best performance of the securities market after the elections and before the inauguration comes at a time of Herbert Hoover. And it confirms my idea, as the poor performance of the securities market during the period of transfer of power to the administrations of FDR and Obama.
Third, some market indicators indicate potential problems that lie ahead. Shares of financial companies and banks in recent months is very strong, but insider sales have become much more.
Although the majority of reviewers talking about the extreme uncertainty in the market expectations of near-record-low volatility, suggesting a possible sudden disappointment. Rapid capital inflows in mutual funds could easily turn into outflows.
Fourth, it is unclear what the base for such a powerful recovery in the stock market. If the clue was “the policy in support of the business”, then under democratic administrations in the last 70 years, the markets would not be as consistently strong as the Republican. Remember that joint 500 U.S. companies included in the S&P 500 index, nearly half its profits abroad. The new internal policy does not strengthen them, but may weaken because of its nationalist orientation. And not clear whether adopted in the current year, the reform of corporate taxation to the extent that it provides for the new administration. We should remember that the famous act of 1986 had on the stock market is very modest impact. The consequences of regulatory change will only be a few industries, and they can neutralize new populist measures, for example, restrictions on the prices charged by pharmaceutical companies.
The fifth and most important point is that new governments with authoritarian tendencies has long been created to the rising stock market conditions, but then it all leads to disaster. However, governments with stronger authoritarian tendencies than the American (remember the days of Hitler and Mussolini), in the first years the markets have seen an increase.
I don’t know what’s harder: to predict the next actions of the President of Donald trump or the fixation of the market. Anyway, after last week’s events much easier to imagine negative than positive scenario.