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The Trump bump and shares – short-term risks, but five reasons for optimism

The Trump bump and shares - short-term risks, but five reasons for optimism Shane Oliver, Head of Investment Strategy and Chief Economist. The attached note looks at the political risks around President Trump and the risk of a correction in share markets generally.

The key points are as follows:

  • The political scandal around President Trump is likely to speed up rather than stop his pro-business reforms.

  • However, after a strong run, shares remain vulnerable to a short-term correction with worries around Trump, North Korea, the Fed, etc, all providing potential triggers.

  • But with most share markets offering reasonable value, global monetary conditions remaining easy and global growth and profits looking good the trend in shares is likely to remain up.

Meanwhile, terrorism looks to have reared its ugly head again this time in Manchester in the UK and our thoughts are with those affected. Financial markets may see a minor short term negative impact but the experience since early last decade has highlighted that terrorist attacks on targets like buildings and sports venues don't really have much economic impact. So while the 9/11 attacks had a big short term share market impact with US shares falling 12% they had recovered in just over a month, the Bali and Madrid bombings had little impact, the negative 1.4% impact on the UK share market of the London bombings of July 2005 was reversed the day after and the French share market only fell 0.1% the next trading day after the November 2015 Paris attacks and 0.3% the day after the July 2016 Nice attack. So while the terror threat is negative for confidence, it would need to cause more damage to economic infrastructure to have a significant economic impact and hence a more lasting impact on financial markets.

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