Thursday, 27 July 2017

Is the Trump Rally Over? Part 3

When i wrote "Is Trump Rally Over?" Part 1 and Part 2, i argued that the Trump euphoria was priced into the market initially from Nov 2016 to Feb 2017, and then it gradually being drained out of the market. I showed this in terms of prices of various growth sectors in the share market.

Here's a Gallup Poll's showing the sentiment towards the Trump administration based on Economic Confidence Index covering from Nov 2016 to July 2017.

Gallup's U.S. Economic Confidence Index

It's obvious that the steep rise of this index from a low of -11 Nov to a high of 16 (a huge 27 points increase) is due entirely to the newly ushered in Trump administration. This couldn't be just an amazing coincidence. It has declined since its peak to a low of 4 as Trump administration is being seen as dysfunctional because nothing has been accomplished some 7 months since inauguration.

Still, the index = 4 is higher than pre-election of -11. The global growth picture is much more positive. And the improving U.S. company earnings are keeping the bull market climbing a wall of worry.

As this index trends lower, the market continue to trend higher because this index clearly links with D.C. while market looks towards improving company revenues, and earnings, and improving markets outside the U.S. The dovish Fed and falling dollar wouldn't hurt.

As i mentioned before, i won't argue if some small measure, like 10%  (20% at most) of Trump's growth agenda is being priced into market. This poll clearly shows much of the positive Trump sentiment is being revised downward.

I see this poor Economic Confidence Index as a positive thing because if confidence is low, meaning expectation is also low. Anything that Trump can deliver, anything at all, is a good boost for confidence, and therefore the market.

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