More business leaders and Wall Street strategists are expressing concern about what President Donald Trump’s protectionist policies and unpredictable nature could do to markets and the economy.
But we all know that actions speak louder than words. What investors actually do contrasts starkly with what people say. The Dow, S&P 500 and Nasdaq hit all-time highs again on Friday.
And the Russell 2000, an index of stocks of small companies that tend to do most of their business in the United States, is now just a few points away from the all-time high it hit last December in the wake of the Trump market euphoria.
What’s more, the VIX (, a measure of volatility known as Wall Street’s fear gauge, is also down nearly 25% this year. If investors were truly afraid of Trump, the VIX should be much higher. )
And CNNMoney’s own Fear and Greed Index, which analyzes the VIX and six other measures of investor sentiment, is showing signs of greed and is not far from extreme greed levels.
Of course, Trump still can’t seem to stop himself from tweeting about things that, let’s be honest, won’t help the economy at all, even though Nordstrom investors are richer despite Trump attacking them for ditching his daughter Ivanka’s brand.
But to give credit where credit is due, it appears the main reason stocks have soared again lately is because Trump has promised to unveil a “phenomenal” tax plan soon.
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Trump also promised again to invest more in infrastructure when he met with airline CEOs on Thursday.
That’s what the market wants to hear.
“We still expect fiscal stimulus, lower taxes and less regulation,” said Matt Lockridge, manager of the Westwood Small Cap Value Fund. “The timing is the big question, but it is yet to come.”
Lockridge believes many companies that generate most of their revenue in the United States should benefit if Trump’s stimulus ends up accelerating the economy.
He likes stocks in a variety of industries, such as movie theater owner. mascot (snack company )J&J ( and aerospace equipment company )kaman (. )
Another money manager said he also remains bullish on small U.S. stocks that could get a boost from Trump’s policies.
Related: Wall Street has a powerful seat at Trump’s table
Barry James, president and CEO of James Investment Research, said he bought the iShares Russell 2000 ETF ( the day after the election because he is confident that Trump’s stimulus plan will boost the growth of American small businesses. )
“When Trump said America first, I really think that’s what he means,” James said, adding that he believes Internet phone service Vonage (rent to own retailer )Aaron ( and discount chain )Large lots ( all could prosper if Trump’s proposals are approved. )
But there is another reason why US markets are near all-time highs. Despite all the uncertainty in Washington, the United States is still seen as a model of relative stability compared to other parts of the world.
The European economy remains a big wild card thanks to Brexit, the rise of populism in France that is raising concerns about the so-called Frexit and more worries about the problem that never seems to go away: Greece’s debt problems.
Japan’s economy also remains stagnant. We are talking about more than a lost decade. It is plural. And China’s economy is also slowing.
Bond fund manager Bill Gross has often joked that America is like what Johnny Cash and Kris Kristofferson sang about in “Sunday Morning Coming Down”: the “cleanest dirty shirt.”
To that end, analysts at bond ratings firm Fitch wrote in a report Friday that “elements of President Trump’s economic agenda would be positive for growth,” but added that “the current balance of risks points toward a global outcome.” less benign.”
Of course, that coin has two sides. Trump’s bombast could come back to haunt him.
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His continued tendency to berate companies he disagrees with on Twitter could dent investor confidence.
And although his proposed travel ban on immigrants from seven majority-Muslim countries has been overturned by the U.S. court system for now, the president has vowed to fight for its restoration.
Even if he loses that battle, it’s still clear that Trump is serious about turning more inward, with plans to impose tariffs and tight border taxes that could trigger trade wars with Mexico, China and Japan. That could hurt large American multinational companies and lead to job cuts.
But investors still seem to believe/hope that the merits of Trump’s pro-growth stimulus plans and tax cuts outweigh the impact of isolationism. Let’s hope they are right.
Investors may be holding their noses, closing their eyes and stuffing cotton in their ears to drown out the president. But they are still buying shares.
CNNMoney (New York) First published February 10, 2017: 11:55 am ET