Stock Market: Investors Take Political Turmoil in Stride

Donald Trump’s first 100 days as president have delivered surprises, scandals and controversy – none of which are considered beneficial to steady stock market performance. Yet, despite the screaming headlines, the markets generally held their own. Here are some of the issues and trends that dominated the investment sector during the past month.

The Whipsaw Effect

President Trump’s Twitter tirades and the firing of FBI Director James Comey initially provoked a swift sell-off on Wall Street as traders and analysts reacted to the latest political turmoil in Washington. The stock market suffered its worst one-day decline since September with the Dow Jones Industrial Average dropping 1.8 percent on May 17. The Comey crisis also had a negative, and measurable, impact on financial markets worldwide. However, this decline proved short-lived, and reports that President Trump had secured deals worth several hundred billion dollars during his visit to Saudi Arabia helped turn U.S. investors’ sentiments bullish again. Overall, it appears that most analysts are adjusting to the nature of the Trump administration.

Stability in Dramatic Times

Some Wall Street gurus are focusing on corporate earnings growth, which has proven to be a stabilizing factor for U.S. stocks, rather than dwelling on the political ruckus created by events like the Comey firing. They note that profit expansion among the Standard and Poor’s 500 is better than it has been for more than five years. Brokers are expecting to see impressive earnings growth for the first quarter of 2017 – growth that matches or outpaces the high point established in the third quarter of 2011. If this comes to pass, it will be the third consecutive quarter for the S&P 500 to show earnings growth. However, this doesn’t mean that there will be no future fallout created by the turmoil in D.C.

At the beginning of the Trump presidency, the markets were buoyed by hopes that the administration would make good on its promises regarding financial deregulation and tax code reform. If uncertainty over President Trump’s ability to deliver on his key election promises builds, both institutional and individual investors will be more likely to keep their cash out of the markets.

Winners and Losers

Major stock price gains by internet companies have helped to propel the high-tech sector to record highs. Some analysts have begun to sound the alarm, wondering if the sector is becoming overvalued and drawing parallels to the 2000 dot.com bubble. Some of the larger brokerage houses have signaled that the gains realized recently might not be sustainable. Others have underscored the differences between the situation in 2000 and today – notably that the sector includes companies with an established track record.

Traditionally, U.S. companies have fared well in Saudi Arabia. Not surprisingly, investors were eager to determine which companies might benefit most from the billion-dollar business deals and accords signed during President Trump’s recent Middle East trip. Among the contract winners are industry leaders like Exxon Mobil and General Electric – both companies signed deals that might create upside for their stock. Other U.S. companies inking deals included Nabors Industries, National Oilwell Varco, Rowan Companies and Weatherford. But remember, there are no guarantees that the initial study phases and product orders outlined in these contracts will ultimately become large and profitable projects.

The above commentary is intended to be general in nature and should not replace the advice of professional tax and investment advisors.

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