Given the climate of uncertainty generated by, among other factors, Donald Trump's tariff war, dare we leave the office?
Is it safe to relax? This is a question that many an investor is asking as they venture to the beach and switch off. August has traditionally been the month of market snooze but can we really relax and expect little to happen?
Unfortunately, the answer is probably no - those days are long gone in this world of 24/7 news. It is also becoming more difficult to decipher real news from fake news, or more accurately, relevant stories which qualify as news, from clickbait headlines which really aren’t worthy of the accolade.
The best non-story of the last two weeks was whether Donald Trump offended the Queen or not and who kept who waiting? If Trump could refrain from responding on Twitter, or in this case, on a hustings platform at his own instigation, then the media wouldn’t feel so compelled to bait him.
One thing we do know is that one day Trump will fall on his sword and step down, and for many that day cannot come soon enough. However, as with many ambitions and dreams, think very carefully what you wish for, because all may not be as it appears.
There are some who are wishing that he gets a bloody nose at the November mid-term elections and loses the Senate. Yet, when you examine the US economic numbers since his inauguration and his foreign policy executive orders, no US voter could question that he hasn’t been true to his word whilst on the campaign trail.
Very few politicians follow through so vehemently with their campaign pledges once elected, especially the really difficult parts which are going to upset so many international allies along the way. He has certainly stood by his words and pledges.
We should also thank our lucky stars that he isn’t approaching his relationship with Putin in the same way that he initially did with Kim Jong-un, otherwise we could be in a very dark place. However, his policy of making friends out of foes (and vice versa) could be storing up trouble for a future US president, as those supposedly new friends are now able to exploit the new US position of tolerance.
It would appear that the US is redefining its position in the world under Trump and that is to be an unrivalled economic superpower once more, because from that, all other positions of power naturally follow.
This is showing itself in stock market returns for the year-to-date but especially since June when the S&P 500 has outpaced all major markets - whilst Asia-Pacific and Emerging Markets, including China, have fallen back.
Meanwhile, the UK has been directionless in its Brexit-induced stranglehold. As usual, there are plenty of harbingers of doom around, calling the end of one of the longest bull markets in history, simply because it is one of the longest bull markets in history.
There are also articles on the increasing odds of economic recession in the US in 2019, grasping at early signs within sentiment surveys and confidence polls which could be showing the beginnings of a slowdown.
Whilst Trump’s trade tariffs are a real threat, the worst forecasts we have seen suggest a 0.5 per cent reduction in global GDP. We take the purist economic view that history has shown there will be no winners, and at some point Trump will realise that his policies serve to increase prices and reduce demand and US growth and jobs, and he will be forced to engage reverse.
The question is, how long will this take? His recent jibe at the Fed regarding interest rate increases may be his insurance policy if US growth dips – he will blame the Fed and not his tariffs, and will relent on the latter to save the US economy from the Fed. Whatever you may think of Trump, he implements policy like an American football coach, always having an offensive and defensive strategy irrespective of the outcome.
Standing back from all the noise and the disaster scenarios, the reality is that global growth is robust and strong and whilst the US economy is firing on all cylinders, that provides a very strong foundation for the rest of the world. Yes, there are specific areas of concern influenced by Brexit, the onward march of Amazon on the high street and US tariffs, but the media profile these are given is out of all proportion to the size relative to global output.
The current US earnings season has seen 80 per cent of earnings reports beat forecasts which is the highest figure since the credit crisis. This means that whilst US valuations were looking expensive, they were behind the economic curve building in an element of caution which has been proved wrong. Whilst it is very sensible to build in some caution and, as an investor, you have to be cognisant of all risks, for now, most known fears appear to be priced into the markets.
Guy Stephens is technical investment director at Rowan Dartington
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