US Stocks Remain Buoyed Despite Trump

U.S. stocks seem to shrug off political uncertainty, and instead are focusing on the potential legislation that the Trump administration will be able to push through.

U.S. stocks seem to shrug off political uncertainty, and instead are focusing on the potential legislation that the Trump administration will be able to push through. Tax cuts are the underlying driver that will provide the impetus for further increases in company earnings. If corporations are able to reduce their tax rate to 15% and bring back capital for continuously, U.S. equities will continue to forge to all-time highs, from even these current lofty levels.

The stumbling block for the Trump administration, is that it’s nearly impossible for White House staff to keep up with the ever changing mood of the President. While Trump wants to focus on his legislative agenda he is easily sidetracked by media reports, especially those that deal with the current investigation by the House and Congress along with the FBI on how Russia affected the U.S. elections.

Comey Firing is Fly in the Ointment

From Trumps standpoint, he seems to not be able to deal with the idea that his victory was altered by the Russians, and his actions reflect a cover up. Last week, President Trump fired the Director of the FBI James Comey. This is only the second time in history that the Director was fired before finishing his 10-year term. While this is unusual, the American people could accept this outcome if there was a clear reason. For example, the only other FBI Director to be fired was William Sessions.

Director Sessions was accused by the Justice Department of a number of ethics allegations. In the first few months of his term, President Bill Clinton asked multiple times for Sessions resignation, as they involved the use of government money for personal use. In this situation, the American people agreed with the President, but in the Trump, Comey case, the only reason that is clear is that Trump did not see Comey as a loyal employee.

In a dinner that the two had together following the election, Trump asked Comey if he would be loyal, and Comey obviously did not give him the answer he was looking for. Since the inauguration, Comey has testified twice in front of congress in an open hearing and in each situation, he acknowledge there was an investigation of the Trump campaign.

Collusion with Russia?

Collusion is the term that generates fear within the Trump White House. If an investigation leads to collusion, those involved will likely be prosecuted which will stain the Trump Presidency regardless of the President was involved. The best case scenario would be a one and done President, where current poll numbers plummet and the worst case would be a constitutional crisis.

Despite the risk that a crisis could occur, stock prices have shrugged aside these warnings. As three major averages are near their all-time highs, as earnings continue to come in stronger than expected. Current, share prices are elevated. The earnings multiple is close to 20, compared to 17, last year. Investors are pricing in a boost from low interest rates and tax reform. The risk is the reform does not come and the premium imbedded in the market is removed, sending stocks lower.

Leave a Reply