The policies of US president Donald Trump are no longer a driving force behind the bull market, according to a closely followed survey of Fidelity International’s analysts. 
Trump took office on 20 January 2017 after a fierce battle for the White House. Between then and the end of 2018’s third quarter, the S&P 500 posted a 31.33 per cent total return while the MSCI AC World rose 26.15 per cent (both in US dollar terms).
Many called this extended leg of the bull market the ‘Trump bump’, thanks to the stimulative effects of the president’s policies. For example, Trump’s Tax Cuts and Jobs Act of 2017 directly benefited the equity market by lowering the corporate tax rate from 35 per cent to 21 per cent while stock prices rose thanks to the president’s deregulation agenda.
Performance of indices between Trump’s inauguration and Q4 2018
Source: FE Analytics
“Two years ago, Donald Trump had just been elected president and media coverage was bursting with scare stories about his economic plans. Yet it seemed that managers, especially in the US, shrugged off the concerns and focussed on the potential benefits to their companies’ bottom lines,” the recent Fidelity Analyst Survey said.
“The promise of lower corporate taxes, less regulation, more public spending and reduced international competition left them feeling more, not less, confident about their outlook.”
During his presidency, Trump has taken to Twitter on numerous occasions to celebrate this, with pronouncements such as “Longest bull run in the history of the stock market, congratulations America!”. Trump tweeted about the rising market more than 30 times in his first two years in office.
Now, however, there are signs that the ‘Trump bump’ has passed – especially after the market was hit by two sell-offs in the final quarter of 2018 – and is unlikely to be repeated in the near future.
This is one of the findings of the latest Fidelity Analyst Survey, which asks the asset management giant’s analysts about what the companies they cover are expecting to happen.
For two years in a row, the survey has showed a modestly positive impact of Trump’s policies on companies globally, fuelled by optimism among US companies. But not any more.
Fidelity said: “That has changed. Concerns about the US administration’s approach are mounting and the net impact on companies is now expected to be negative.”
Impact companies are expecting from Trump’s policies in the next two years
Source: Fidelity Analyst Survey 2019
Almost half of all Fidelity’s analysts globally believe Trump’s policies will be a drag on the sector they cover (up from only 13 per cent last year) and fewer than one in five thinks they will be positive (down from 38 per cent).
“Most significant is the shift among analysts covering North American companies, whose watchful optimism has entirely evaporated,” Fidelity said. “It mirrors their views on protectionism, which more than two-thirds say is a risk to business.”
When it comes to the US, corporate earnings have enjoyed a couple of bumper years because of the tax cuts but this has driver has now started to fade. Meanwhile, Trump’s combative stance on international trade has dented sentiment and US infrastructure spending has disappointed.
Only one-quarter of analysts covering North America predict fiscal policy will be supportive this year and this is down to the lingering effects of the tax cuts. And just one in six analysts thinks deregulation will offer a further boost while around half see geopolitics as a drag on investment plans.
The concerns of Fidelity’s analysts are not limited to those covering US companies, with those looked at Asia-Pacific, China, Japan, Latin America and Europe all expecting Trump’s policies to have a negative effect over the next two years.
“The chilling effect of Trump’s policies is felt in far-flung places: our analysts say even Macau casino operators fear Trump’s policies will weaken demand in China and depress their customers’ spending, with little predictability for planning purposes,” the research added.
In addition, the chart below shows how Trump’s policies are expected to harm almost every sector.
Telecoms is the only area where company managements unconcerned and this is down to the fact that they are domestically focused business; in utilities the aggregate effect is expected to be neutral but every where else it is negative.
Impact companies are expecting from Trump’s policies in the next two years
Source: Fidelity Analyst Survey 2019
Fidelity’s research concluded: “Still, some of this pain may be eased by the longer-lasting effects of tax reforms that have already been enacted, even if their impact will fade.
“It is also a relatively safe bet that president Trump will attempt some form of electoral sweetener in the next two years to bolster his chances of re-election in 2020.
“Giving the economy a boost of the same magnitude in the near future will be harder for Trump to achieve after the Democrats took control of the House [of Representatives] in the midterms. But even if he could, there are declining marginal gains to be made from further stoking the American economy.”