Adviser usually don't put much stock in market milestones like the Dow Jones Industrial Average passing the 20,000 mark, as it did last week. But their clients do.
Indeed, advisers can expect to get phone calls soon — if they haven't already — from clients asking whether their portfolios are properly positioned to take advantage of the trends that are emerging in the Trump era.
Whether he's suggesting a 20% tax on Mexican imports and other restrictive trade policies, huge tax cuts, or investments in infrastructure, President Trump is having an effect on both the overall market and on individual companies and industries.
MERCURIAL PERSONALITY
The problem is, Mr. Trump is such a mercurial personality that it is difficult to discern when he is serious and when he is beating his drum for effect.
As Tom Forester, manager of the Forester Value Fund, told senior columnist John Waggoner last week for his story on Mr. Trump's impact on the stock market: “The hard thing, really, is that Mr. Trump says so much, and so much is contradictory, that you don't know what can be acted on.”
Case in point: A few weeks ago, Mr. Trump blasted General Motors for making its Cruze model in Mexico.
GM's stock promptly dropped from $36 a share to $34. However, when it became known that Mr. Trump was talking about a hatchback model and that the vast majority of GM's other, more popular Cruze model was being produced in the U.S., the stock bounced back to more than $38 a share.
You get the point. Yes, Mr. Trump has a bully pulpit and he's not afraid to use it for any number of causes. But investments are ultimately made on the basis of cold, hard facts, and Mr. Trump has shown that his facts are sometimes suspect.
(Related read: Trump administration could stymie DOL fiduciary rule by dropping legal defense)
Which is not to say that an investor following the Trump presidency might not be able to discern policies that would translate into an investment strategy. As a candidate, Mr. Trump argued for infrastructure investments that would not only improve our roads and bridges, but would also provide jobs for hundreds of thousands of workers — another of his goals. Investing in companies that would be involved in rebuilding that infrastructure would make sense.
DEFICIT SPENDING
However, even there one needs to be careful. Mr. Trump cannot write a blank check for infrastructure spending. Congress has to sign off on that, and with Republicans railing against deficit spending over the past eight years, it will be hard for them to come up with the money to finance Mr. Trump's ambitious plans. At the same time, investors should not underestimate the president. He has shown himself time and again to be a shrewd negotiator who often gets what he wants.
Faced with calls from clients inquiring about the Trump effect, advisers should do what they always do: Talk them off the ledge. Remind clients of their investment goals and that taking a long-term view is always more advantageous than jumping on the latest trendy bandwagon, no matter how attractive and alluring it initially looks.
At the very least, advisers can remind clients that Mr. Trump has been in office for less than a month. It will take some time before we know what type of leader he will truly be and whether it makes sense to get on board with his vision of America. Give him some time to prove to the American people — both his supporters and critics — what he is capable of achieving and whether he can make the decisions that benefit our economy and lead to long-term prosperity.
