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Bull run can charge through Trump but not forever

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By Jon Hay
18 May 2017

Wednesday’s sharp fall in the S&P 500, as the political storm around US president Donald Trump’s links with Russia intensified, has not turned into a market rout... yet. Equities bankers, indeed, are convinced it is a blip, saying investor appetite for stocks remains strong.

They certainly hope so. The 10 days after Emmanuel Macron won the French presidency on May 7 have brought a €6.4bn hail of 37 block trades in EMEA — a sixth of all such business this year.

France’s election was this year’s big political known unknown. The problem dissolved, it was time to do deals, right across financial markets.

What could upset things? Unfortunately, Trump is a walking, squawking known unknown.

Since Trump’s tax-cut-and-spend policies have taken credit for the 15% rise in the S&P 500 since just before his election, his stimulus evaporating could, in theory, wipe out that gain.

Bulls have rebranded the Trump trade as one based, more solidly, on US corporate earnings, which had a surprisingly impressive first quarter.

They are probably right to discount Trump’s Russian ructions. This was always going to be part of the package with Trump and what we have seen so far may be peanuts compared with the porkies and clangers to come.

The Republicans control Congress, and they love to cut tax. They will not rush to impeach their man.

But if politics are not going to burst the bubble just yet, that doesn’t mean it can go on swelling forever. The stock market is pricing in heroic future growth for an economy not growing all that fast.

This week’s jitters are a reminder that, in their hearts, everyone knows sooner or later there’s going to be a big pop.


By Jon Hay
18 May 2017