Trump is not killing the bull market. Here’s why

Trump meets with airline executives

More and more business leaders and Wall Street strategists are expressing concern about what President Donald Trump’s protectionist policies and unpredictable nature could do to markets and the economy.

But we all know that action speaks louder than words. What investors are actually doing is in stark contrast to what people say. The Dow, S&P 500 and Nasdaq all hit all-time highs again on Friday.

And the Russell 2000, an index of stocks of small companies that tend to do most of their business in the US, is now within a few points of the all-time high it hit last December on Trump’s market euphoria .

It’s more, the VIX (VIX), a measure of volatility known as Wall Street’s fear gauge, is also down nearly 25% this year. If investors were truly afraid of Trump, the VIX should be much higher.

And CNNMoney’s Fear and Greed Index, which looks at the VIX and six other measures of investor sentiment, shows signs of greed and is not far from extreme greed levels.

Of course, Trump still can’t seem to avoid tweeting things that, let’s face it, won’t do anything to help the economy, even though Nordstrom investors are richer despite Trump attacking them for ditching his daughter’s brand Ivanka.

But to give credit where it’s due, it looks like the main reason stocks have taken off again lately is because Trump has promised to come up with a “phenomenal” tax plan soon.

Related: Rare streak for US stocks: Long stretch without a 1% dip.

Trump also pledged again to invest more in infrastructure when he met with airline CEOs on Thursday.

This is what the market wants to hear.

“We still expect fiscal stimulus, lower taxes and less regulation,” said Matt Lockridge, manager of the Westwood Small Cap Value Fund. “Timing is the big question, but it’s coming.”

Lockridge believes many businesses that generate most of their revenue from America should benefit if Trump’s stimulus ends up kicking the economy into higher gear.

He likes stocks in various industries, such as owning a movie theater Masco (MORE)a snack company J&J (JJSF) and aerospace equipment company Kaman (KAMN).

Another money manager said he remains bullish on small U.S. stocks that could get a boost from Trump’s policies.

Related: Wall Street has a powerful seat at Trump’s table

Barry James, president and CEO of James Investment Research, said he bought the iShares Russell 2000 ETF (IWM) the day after the election because he is confident that Trump’s stimulus plan will boost the growth of America’s small businesses.

“When Trump said America first, I really think that’s what he means,” James said, adding that he thinks Internet phone service Vonage (VG)rental retailer with own account Aaron’s (AAN) and discount chains Big Lots (BIG) all could prosper if Trump’s proposals are carried out.

But there’s another reason US markets are near record highs. For all the uncertainty in Washington, the US is still seen as a model of relative stability compared to other parts of the world.

The European economy remains a wild card thanks to Brexit, the rise of populism in France that is causing worries about the so-called Frexit and more worries about the problem that never seems to go away: Greece’s debt problems.

Japan’s economy also remains stagnant. We are talking about more than a lost decade now. It is plural. And China’s economy is also slowing.

Bond fund manager Bill Gross has often joked that America is like what Johnny Cash and Kris Kristofferson sang about in “Sunday Morning Coming Down” — the “cleanest dirty shirt.”

To that end, analysts at bond rating firm Fitch wrote in a report Friday that “elements of President Trump’s economic agenda would be positive for growth,” but added that “the current balance of risks points to towards a less benign overall outcome.”

Of course, this coin has two sides. Trump’s bomb may come back to haunt him.

Related: Oreo make worried about rise of populism

His continued tendency to berate companies he disagrees with on Twitter could hurt investor confidence.

And although his proposed travel ban on immigrants from seven predominantly Muslim countries has been struck down by the US court system for now, the president has vowed to fight for their reinstatement.

Even if he loses that battle, it’s still clear that Trump is serious about moving further inward, with plans for tariffs and border-tightening taxes that could ignite trade wars with Mexico, China and the Japan This could hurt large US multinationals and lead to job cuts.

But investors still believe/hope that the merits of Trump’s pro-growth stimulus plans and tax cuts will outweigh the impact of isolationism. We hope they are right.

Investors may be holding their noses, closing their eyes and stuffing cotton in their ears to drown out the president. But they are still buying shares.

CNNMoney (New York) First published on February 10, 2017: 11:55 am ET

Leave a Reply

Your email address will not be published. Required fields are marked *

Previous post US Open: Why is it so hard to win a second Grand Slam?
Next post Reba McEntire postpones concerts due to doctor-ordered “vocal rest.”