A month after the election, it's fair to say that the Trump rally in the stock market has some stamina. Almost every sector is rising, and economic sentiment is brightening among CEOs, consumers and just about everyone but degree-holders in the northeast. The byword, says Bank of America Merrill-Lynch (among others), is that trusty old standby, animal spirits.
But liberal economists and investors disappointed in Trump's victory are putting the surge in slightly different terms. To Yale economist Robert Shiller – who broke from his normally apolitical stance to call Trump's campaign a “great moral issue” – the rally is a form of “black magic.” CNBC:
“We have a business-oriented president who wants to cut corporate taxes, who wants to cut regulations, and who sympathizes with business,” Shiller said.“Maybe it's not a good thing — it's a good thing for business, though.”
“Once people start to believe that it's a new era, it could go on for a while, even if it's unfounded,” since “it's about human psychology, and it's what they call self-fulfilling prophesy.”
“Trump does magic,” he added – even if it is the dark variety.
Or take Marc Lasry, longtime Democrat and manager of the hedge fund Avenue Capital Group. To him, the rally is nothing but a “sugar high.” Again, CNBC:
The people [Trump] is putting in place … it will be a big experiment. All those business folks will be able to reduce regulation, increase GDP growth. If it occurs, great. I don't know if that happens. … I hope it does. The early signs are positive, so let's wait and see.
Tax cuts, deregulation and repatriated profits mean a conveyor belt of cash flowing to shareholders. That's a somewhat narrow reason why stocks have popped, especially financials, which have been on a tear. But at this point there's been plenty of time for investors to price in Trump's policy prospects in a Republican-dominated Congress. Increasingly, the market seems to be riding the same wave of optimism that is apparent in economic surveys.
That could be justified – positive outlooks drive business decisions, capital spending and the like – or it could be brief spasm of enthusiasm before longer-term secular headwinds return to Wall Street's attention. Who knows! In the meantime, it's heartening to see the financial lingo dictionary growing longer as liberal investors come to grips with Trump's America.