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article imageTrump stock rally begins to fade as investor doubts gain ground

By Ken Hanly     Apr 22, 2017 in Business
The stock market did well after Trump won the presidency even after his inauguration He had promised business friendly policies, such as deregulation, a huge infrastructure spending program and reduced taxation.
The US stock market entered what has been called the Trump Rally after his election. Just 42 days after breaking the 20,000 level, the Dow Jones Industrial Index (DJI) broke through the 21,000 mark on March 1st after an important Trump speech. It has since fallen back to 20,547 on the 21st of April.
Some of the promises that Trump made that caused the market to rally remain unfulfilled, including the massive infrastructure spending program and lower taxes on business. Trump also failed to pass his American Health Care Act, a miserable failure. This failure makes many investors wonder if Trump has the ability to push his business-friendly agenda through Congress. This lack of progress is being reflected in markets as areas such as industrials that would benefit from Trump policies are falling back from their highest levels. Even financials are faltering after gaining as much as 12 percent.
A group of highly-taxed stocks rose 14 percent after Trump was elected but have since declined as Trump's tax policy changes. During the campaign Trump said he would lower corporate taxes from 35 percent to as low as 15 percent. For the most highly taxed companies this would be a huge saving. But since being elected Trump has changed his tune. In February he told a group of manufacturing CEOs that the rate could be 15 to 20 percent. However, recent reports indicate the rate could end up as high as 28 percent. Even the time frame for the tax changes to happen is being pushed further into the future. Trump, Munchin, and top adviser Gary Cohn have done away with a former deadline of August for the changes. Greg Jensen and Atul Narayan of Bridgewater Associates said that they saw the tax rate being close to 25 percent and having less of an impact than earlier plans.
The Bank of America did a survey that found that 21 percent of fund managers saw a delay in tax reform as the biggest risk to US economic growth. This was more than double the previous month percentage. A Goldman Sachs list of 50 highly-taxed companies had climbed as much as 14 percent since the election through March 1 but has fallen by 3.6 percent since then.
Industrial stocks moved up on the basis of Trump's promise to put $1 trillion towards infrastructure spending. But there are no definite plans yet forthcoming and there are rumours that the White House will move the investment into the future with 2018 being the earliest. Scepticism about the program has resulted in a drop in the S&P 500 Industrial Index that lost 3.1 percent after a 14 percent rise up to March 1.
While Trump has done away with some regulations he has not yet tackled the Dodd-Frank act the largest piece of bank regulation since the financial crisis. Trump said on April 4th that he wanted to give the act "a haircut". A video on the issue is appended. After the S&P 500 financials soared by as much as 25 percent up to March 1, they have fallen back 8 percent since then. Part of the gain in financials has been from rising interest rates. The Federal Reserve raised rates twice since last December.
One sector that has risen partly as a result of Trump's lack of action are retailers. The imposition of a border-adjusted tax appears to have dimmed if not died. Sean Spicer, the White House press secretary spoke of a 20 percent border tax being considered by the White House. Yet now Trump administration officials are even talking down the possibility of such a tax. The nationalist protectionist figures in the Trump administration, such as Steve Bannon, appear on the decline as globalists, such as Jared Kushner, gain more power.
Michael Hartnett of Bank of America Merril Lynch (BAML) wrote in a client note: "Only 5% of investors expect tax reform to be passed before the summer recess. and almost as many now expect no US tax reform before 2018 as expect it by year-end."
Back at the beginning of February, Nouriel Roubini, Dr. Doom had predicted that the stock market Trump honey moon would soon be over. He may have been a bit early but there are signs that he may be right. Unless Trump is able to accelerate the passage of business-friendly policies, markets may decline even more. Investor's may be beginning to realize that Trump is not reliable regarding his promises to business and that his unpredictable aggressive foreign policy also may cause problems for economic growth and trade in the future.
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