Trump will struggle — but global stocks will boom
The biggest loser in 2016 wasn’t Hillary Clinton or David Cameron. No, it was the American media — and pundits, pollsters and wiseguys who said Donald Trump wouldn’t win — and that on the outside chance he pulled off the impossible, you should sell stocks and brace for Trumpocalypse.
If you knew where to look, Trump’s victory was easily fathomable. As I wrote here in July, Republicans controlled most state legislatures — 31 pre-election, versus 11 for the Democrats. The media foresaw a Clinton victory because states voting for Democrats in four of the past five presidential elections totalled 257 electoral votes, 13 short of the 270 needed to win.
As I said then: "If the US votes this time bottom up, as its legislatures are by state, Trump would win 309 electoral college votes, 39 more than he needs — almost the reverse of the conventional top-down analysis…. By my estimate, Trump will win the presidency even if he loses the popular vote by several per cent." In the end, Trump got 306 electoral votes despite losing the popular vote by 2.9-million — a 2.1% deficit, the biggest to date.
Pollsters and the media foresaw none of this, just as they missed Brexit and other recent contests, and it’s all hurting confidence in the media. A September 2016 Gallup survey showed just 32% of Americans trust media, a record low. Levels of trust among Republicans sank from 32% in 2015 to 14%, eroded by the vehement never-Trumpism espoused by conventional GOP sources. Democrats had more faith at 51%, but that was down from 60% just three years ago, all pre-election.
That figure will plummet in 2017’s tally. People, realising media entertains less than informs, are walking away. Is there a calamity in store? Don’t fall for it. Instead, expect the unexpected: a benign Trump who does less than we imagined, prompting stocks to rise as investors’ longstanding scepticism turns from markets to media. Pundits can say whatever they want, but a distrustful discerning public will pay ever less heed. This is the year where media trumpeting yields to millions of minds gaining animal spirits.
Markets will receive Trump as they normally greet a new Democratic president: pleased he isn’t as bad for markets and business as first feared, leading to big inaugural-year returns. Fear was baked in last year. Trump remains the most hated new president in modern times. Pundits deride his cabinet picks. Republican investors fear he’s an anti-trade, populist, undignified rabble rouser. Wall Streeters’ forecasts are barely positive — the most muted since 2010. No, expect a big year for stocks as a non-disastrous Trump beats expectations.
This world isn’t fundamentally different simply because he won. Trump talks a lot, but talk is cheap. He said so much in the campaign, much of it contradictory, making it impossible to discern what he really believes and which policies he’ll push. The wall? Chinese tariffs? Reducing regulations? Tax cuts? Trade agreements? Trump himself probably won’t know until he starts trying. Nothing prepares you for the challenge of being president. But you can prepare for a great stock market year.
Betting on what Trump will do is wrongheaded. Even if you guess right, presidents can do little on their own. Big change requires legislation and Congress is an undrainable swamp. Republicans have just 52 Senate seats to Democrats’ 48, yet 20% of Republican senators didn’t endorse Trump. Intraparty squabbling will be a new source of gridlock. Budget hawks will probably block huge tax cuts and major new spending. Republican leaders are pushing back on The Wall. Whatever you fear or hope happens probably won’t (or will less than you fear or hope).
Post-election wiggles demonstrate the Trump trade folly. Defence stocks rallied for several days, buoyed by higher spending hopes. Then Trump tweeted against Boeing and Lockheed, and the category plummeted, ending 2016 well below election day. Expect contradictions galore amid a great global stock market year led by technology, drug stocks, consumer discretionary and staples. Expect US stocks to start lagging the world, while continental Europe starts to lead. My most controversial forecast? Long-term interest rates will fall. Enjoy.
• Fisher is founder and chairman of Fisher Investments.
© The Financial Times 2017