The Trump honeymoon isn't over yet as far as the stock markets are concerned. But investors are wavering amid concerns about where the new administration is heading. And CEOs are wondering how the President's new policies are going to affect their businesses.
Last week was a prime example of how nervous everyone is right now. The Dow recorded double-digit losses on Monday and Tuesday after the announcement of the immigration and refugee ban prompted widespread protests and shook up the tech sector.
For the next two days, the Dow drifted aimlessly before rallying on Friday on news Mr. Trump is moving quickly to seek revocation of many of the regulations put into place by the Dodd-Frank bill of 2010, which imposed tight controls on the U.S. financial sector.
The bill was designed to prevent abuses of the kind that almost brought down the global financial system in 2008. However, many business leaders, economists, and politicians have complained that it has overregulated the industry to the point where small business lending has declined and major companies have been forced to spend millions to meet overzealous rules.
Opponents of the bill say that reducing the red tape that has constricted the financial sector will stimulate business and enhance corporate bottom lines. Opponents of a rollback claim it will bring back the Wild West era on Wall Street that led to the 2008 crisis.
President Trump left no doubt about where he stands (he never does!) when he declared flatly on Friday: "Dodd-Frank is a disaster."
We have no idea at this point to what extent the bill will be gutted but the financial sector clearly expects some major beneficial changes. Shares in Goldman Sachs were up more than $10 on Friday. JPMorgan Chase was ahead more than $2 and Wells Fargo and Citigroup gained over $1.
While the move to deregulate the financial sector was welcome news on Wall Street, many senior business executives are worried about what else Mr. Trump may do, especially in the areas of taxes, border controls, and spending.
A report published in Friday's Wall Street Journal said that of the 242 companies that have held conference calls on their latest financial results, half had mentioned the President and his policies, either directly or indirectly. Most of the comments were favourable or optimistic, the Journal said, but in some cases concern was expressed over the idea of a border adjustment tax that has been pushed by several prominent Republicans including House Speaker Paul Ryan.
As things stand right now, no one (probably not even Trump insiders) knows what is coming. Corporate leaders are hopeful that the administration will deliver major tax cuts that will enhance their bottom lines but the budget hawks in Congress may water down or even torpedo that plan. A border tax makes many companies nervous, especially large importers, who would not be able to deduct the cost of those imports (hello Wal-Mart). The high-tech sector, which employs many overseas engineers and technicians, is steamed at the immigration ban.
The performance of the U.S. markets last week demonstrates the ambivalence investors are feeling after two weeks of President Trump. They want to be optimistic about the future. But then he unnerves them by with his aggressive immigration ban, his criticisms of Germany and Australia, and rattling sabres at Iran, leaving people shaking their heads.
It's not going to change. Last week's volatility was just a harbinger of what's to come. Be prepared.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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Gordon Pape