When President Donald Trump tweeted his displeasure with a strong U.S. dollar, it dropped in value. When he tweeted his support for metal tariffs, manufacturing stocks tanked. When he threatened to take action against OPEC for restricting supply, crude oil prices fell – but they jumped again when he tweeted about Iran.
Mr. Trump’s tweets seem to come out of nowhere, confounding investors from Wall Street veterans to small-town Canadian retirees just looking for safe returns in their registered retirement savings plans.
If you’re the latter, the Wall Street veterans have some advice on navigating a Trump Twitter storm.
“The process causes a great deal of anxiety, and that’s what’s troubling markets right now,” says Art Hogan, managing director and chief market strategist at B. Riley FBR Inc., based in Boston. He is confident that Mr. Trump can deliver more market-boosting policies such as this year’s corporate tax cuts, and he believes negotiations for a new North American free-trade agreement (NAFTA) and a trade deal with China will eventually be successful – but says it has to be Mr. Trump’s way.
“You have an administration that wants to pound its chest in the beginning and hopefully get to a middle ground in the end – a sort of ‘art of the deal.’ Well, the art of the deal is hard to watch,” he says. “I think that if we can get something positively done renegotiating NAFTA it will give us a hint toward what we can get done with China.”
Mr. Hogan says investors need to look past Mr. Trump’s apparent contradictions, such as his claim to be a free-market advocate. “It’s interesting that on the one hand he will say he wants free and fair trade, and to get that he institutes protectionist policies. That’s counterintuitive at best.”
He acknowledges Mr. Trump’s persistent untruths can be damaging to investor trust, such as his admission this spring that he was fabricating facts when he made the false claim that the United States had a trade deficit with Canada. “The trust issue is difficult. The trust issue with China is difficult for everybody, but we don’t want to make that worse by having trust issues with us by continuing to throw numbers out there that aren’t necessarily accurate,” he says.
And then there’s the one huge potential market risk that money managers often speak of only in hushed tones: the Robert Mueller investigation into Russia’s involvement in the 2016 election and possible collusion with the Trump campaign – and the potential for impeachment.
“If it’s going to happen, it probably won’t happen until after the [U.S. midterm] election,” says Mr. Hogan. “Right now the market is much more focused on things like trade than the Mueller investigation.”
His advice for retail investors in the age of Trump is to invest in long-term corporate earnings growth and stay diversified. “That’s the problem when you have a lot of noise and uncertainty. It makes it easy to get to a place where you panic and don’t stick to your plan. That’s where some of the biggest mistakes are made,” he says.
If investors are still nervous, Mr. Hogan recommends taking a bigger portfolio weighting in cash. “If you have a 60/40 portfolio of equities to fixed income, and your typical level of cash is 5 or 10 per cent, you might raise that to 20 per cent and try to ride out the storm,” he says.
David Baskin, president of Baskin Wealth Management in Toronto, is also positive on the broader equity markets, but less diplomatic in his assessment of Mr. Trump. Most of what he says is bluster, he says.
“Very little of it actually gets put into action. Trump is jawboning about NAFTA, he’s jawboning about aluminum and steel, he’s jawboning about China, he’s jawboning about oil – and all of it has some effect, but you’d be really foolhardy to try to trade on it unless you’re a day trader.”
Mr. Baskin’s advice to investors is to assume everything Mr. Trump says is untrue and treat him like any other market distraction. “Nobody believes a word he says in terms of numbers or facts,” he says. “There’s a lot of things you can’t figure and it turns out Donald Trump is one of them.”
One example he points to is Mr. Trump’s Twitter attack on Amazon chief executive officer Jeff Bezos earlier this year with false claims relating to the online retailer’s use of the U.S. Postal Service. Concern over the wrath of the White House on Amazon’s bottom line caused the stock to sell off. It has since recovered those losses and now sits near an all-time high.
Mr. Baskin’s advice, like Mr. Hogan’s, is to focus on corporate earnings. “In our view, if everything stays equal, companies that make more money are worth more,” he says.
The U.S. corporate tax cuts, along with measures to reduce regulation, are already boosting profit for U.S. companies – a factor that Mr. Baskin has used to his strategic advantage. “We increased our allocation to American stocks in preference to Canadian stocks simply because business conditions are better in the United States than Canada,” he says.
“The one thing that Trump has succeeded in doing is lifting some regulatory burdens on certain companies and industries in the United States. That means besides paying less taxes they are probably encountering fewer overhead costs.”
On the thorny issue of the Russia investigation and possible impeachment, Mr. Baskin takes an optimistic view: “I’m not sure how the market would react toward impeachment,” he says. “People might rejoice. (Vice-President) Mike Pence is a much more conventional politician in the sense of how he views the economy and his relationship to truth.”