Stocks rise before Trump takeover; history suggests month will be down

LONDON: Most European stock markets and Wall Street climbed on Friday before Donald Trump’s inauguration, with markets hoping that the US president’s speech will expand on his planned economic policy.

London’s benchmark FTSE 100 was flat in afternoon trading, supported by a weak pound boosting exporters’ share prices and thanks to some positive Chinese data, traders said.  In the eurozone, Frankfurt’s DAX 30 index won 0.1 percent and the Paris CAC 40 gained 0.3 percent compared with Thursday’s closing levels. Wall Street opened higher, with the Dow climbing 0.4 percent.

“In focus today will be the inauguration of Donald Trump... with investors hoping that his speech comprehensively outlines his policy plans for the next four years,” said Accendo Markets analyst Mike van Dulken. “Financial deregulation, infrastructure spending and tax reforms will be the key policy topics markets will be hoping receive some dedicated airtime.”

While he promised a big-spending, tax-cutting drive to fuel the world’s top economy, the tycoon has failed to provide any detail, leading to worries about his ability to deliver.

The dollar meanwhile recovered, having slipped after Federal Reserve boss Janet Yellen this week indicated that the US central bank would take a wait-and-see approach to monetary policy, suggesting any rate hikes this year could be slow.

The dollar has soared since November on bets Trump’s fiscal policies would fan inflation and force the Fed to raise borrowing costs.

For financial markets, the Trump era begins on Monday, and if history is any guide the following month should be a rocky one for Wall Street but positive for the dollar.

The S&P 500 .SPX has fallen a median 2.7 percent in the month after each new president has taken the keys to the White House since Herbert Hoover did so in January 1929, according to Reuters analysis.

Only four presidents have seen Wall Street rise in their first month in power: Hoover (+3.8 percent), John F. Kennedy in 1961 (+6 pct), George H. W. Bush in 1989 (+5.3 pct) and Bill Clinton in 1993 (0.8 pct).

The market has fallen in the first month under every other incoming president since Hoover. Even Ronald Reagan and Barack Obama, who ultimately presided over 120 percent and 165 percent rallies on Wall Street during their two terms, respectively, saw initial slides of 4.8 percent and 15 percent.

The dollar tends to fare better. Analysis going back to the early 1970s when the currency was taken off the gold standard shows it has risen an average 2.2 percent in the first month of a first-time president.

Donald Trump takes office as the 45th president of the United States with investor apprehension over an incoming president has rarely been higher.

“There are two sides to Trump, the one side focusing on U.S. stimulus which drives up global growth and the other side, the protectionist Donald Trump that could do the opposite. So the big question is which will we get?,” said State Street Global Advisors’ EMEA head of currencies James Binny. Markets latched on after Trump won the November election to his reflationary and pro-growth stance: stocks rose to new highs, the bond selloff deepened, and the dollar clocked a 14-year peak against the euro.

But as the inauguration has drawn closer, that momentum has faded. This week, the Dow Jones and dollar hit six-week lows, the 10-year U.S. Treasury yield its lowest since late November, and gold rose to its highest in two months.

Some investors are playing safe.

“We are neutral, because we don’t know exactly what direction Trump will take,” said Lukas Daadler, chief investment officer of investment solutions at Robeco, a subsidiary of Robeco Group. The latter has 269 billion euros in assets under management. “There is some extreme positioning out there, so there’s the risk of a short squeeze. But we’ve taken a neutral stance, and we might see more detail on his plans next week.”