10 March 2025, 08:55
The US Presidential Election on 5 November 2024 sent President Donald J Trump back for a second term to the White House, after a 4-year break, which was not without its controversies.
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Politically the US has never looked more divided than it was then and is now.
However, stripping out any personal prejudices, stock market protagonists liked the idea of a low tax regime, with cuts in public expenditure providing incentives for business, including cuts in interest rates. Many felt that the eye-watering level of debt at around $36 trillion could be serviced and managed.
President Trump has very cleverly surrounded himself with loyal supporters, many of whom have limited or no political experience – JD Vance, Scott Bessent (Treasury) and Howard Lutnick (Commerce) are classic examples.
The most unorthodox appointee to Trump’s administration is Elon Musk, the controversial businessman and pioneer of Tesla, who is not officially part of the Government. He was appointed to cut waste in government.
Notwithstanding these controversial appointments, Wall Street responded positively and by the time of the inauguration day - 20th January 2025 - the NASDAQ and S&P 500 were in ‘rock ‘roll’ territory. However, since then investors have seen the errors of their ways. There has been a measurable sell-off.
President Trump’s stance on Ukraine, supporting Putin, whilst disengaging with the US’ allies in Europe coupled with the draconian implementation of tariffs against Canada, China and possibly China, which will create global inflationary waves and the threat of recession has seen many an investor ‘head for the hills.’
Even those countries not directly affected by these trade tariffs are all likely to be adversely affected, especially by all the supply chains. The inevitable cost in the increase in widespread defence expenditure will also take its toll globally.
Although Trump’s insistence that waste in the public sector must be cut is very popular with voters in the US, many of whom frankly do not understand the ramifications of such tough self-focused legislation.
The outside world sadly sees the 47th President of the US more in the vein of ‘President Donald Corleone’, rather than the democratically elected ‘Commander in Chief.’ What also surprises the public at large is how spineless the Democrat opposition is. To the outside world, the party seems voiceless and neutered.
Since 20 January 2025 global indices activity point to ‘uncertainty’ in terms of US markets. Consequently, they have shed a fair bit of value, with NASDAQ down 5.5% last Friday, wiping out all gains this year. TESLA NVIDIA, AMAZON and ALPHABET have surrendered circa $1.3 trillion in value in short order.
Other international bourses have more or less kept their poise, though the NIKKEI has reacted negatively this year thanks to higher rates and the strength of the Yen. Its neighbour, the Hang Seng has been on fire thanks to tech stock resilience and competitive AI developments and competition with its US peers – year to date performances -FTSE 100 +1.86%, DAX +9.6%, CAC40 + 5.0%, DJIA -2.7%, S&P500 -4.6%, NASDAQ -5.50%, NIKKEI 225 -5.18%, HANG SENG +21.6%, SHANGHAI COMPOSITE +3.95%.
Considering the economic outlook for Germany and France has not really been very appetising, the performance of the Xetra Dax and the CAC 40 has been impressive. It is important, when assessing the constituent companies in say the FTSE 100, and those in the German and French counterparts, that investors and observers don’t fall into the trap of metaphorically ‘comparing apples with pears.’
The FTSE is an international index, whose value is dependent not only on the value of the pound, but also the fact that 60% of the value of these companies is calculated in Dollars and the Euro. Since BREXIT international investors have tended to value these companies at a significant discount to their US counterparts.
The mining, energy and telecom sectors in the UK have also been very poor performers in the last year or so. The FTSE is also at a disadvantage to its European peers in that tech plays only a ‘spear carrying role’, with Relx, Sage, Intertek and Convatec very much in the vanguard. Tobacco, healthcare and retail have also been reliable contributors.
Set out below are the leading gainers in the Xetra Dax and the CAC 40. European banks have done so well this year, whereas last year they disappointed, when UK and US banks put in stellar performances. Insurance companies, tech and healthcare are also putting in stellar performances this year.
Equity markets remain in a state of either pre- or post-prandial neurosis. One man has the key to the Kingdom: President Donald J Trump. When he is finished playing roulette with our lives, hopefully, some poise will return to the marketplace. The NASDAQ has entered correction, and the S&P 500 is not far away. President Trump loves making money. Every decision appears to be a deal to him. Let’s hope good sense will eventually prevail. Solutions do not seem to be immediately obvious.
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David Buik is LBC's Markets Commentator.
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