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A test of (market) IQ: Scotiabank economist finds Trump wanting
Michael Babad

This article was published more than 6 years ago. Some information may no longer be current.

Briefing highlights

  • Scotiabank on Trump and stocks
  • Markets at a glance
  • Corporate earnings season kicks off
  • JPMorgan earnings jump 7.1%
  • Citigroup profit rises
  • Metro to sell Couche-Tard holdings
  • GM warns Unifor amid strike
  • HSBC names new CEO

President Donald Trump clearly has an issue with whose is bigger, so test your market IQ against his: Is he right or wrong on what his tenure to date has meant for U.S. stock prices?

Mr. Trump boasted via Twitter Wednesday that stocks have surged by 25 per cent, or $5.2-trillion (U.S.) since he won last November's election. He noted, too, that unemployment is at its lowest in 16 years and that "if Congress gives us the massive tax cuts (and reform) I am asking for, those numbers will grow by leaps and bounds."

How nice it would be, he added, if "the Fake News Media would report the virtually unprecedented Stock Market growth since the election."

I don't know about the fake news media, but the traditional news media tends to seek experts in their fields for answers.

On that note, we bring you Derek Holt, Scotiabank's head of capital markets economics and, thus, not a faker. Using Bloomberg data and referring to the U.S. dollar by its symbol, here's how he sees it:

"What's relevant to global asset allocation decisions is that U.S stock market capitalization in aggregate is up by about 19 per cent since the November election while world equity market capitalization is up by 33 per cent. In USD terms, aggregate U.S. equity market capitalization is up US$4.4-trillion since the election (not $5.2-trillion Trump claimed) and world equity market capitalization is up US$21.8-trillion over the same period. Take the U.S. out of the world, and the rest of the world's market capitalization has risen by 41.6 per cent over the post-election period, or about US$17.2-trillion."

What that means, Mr. Holt said, is, actually, that "the U.S. market is dragging the rest of the world index lower."

Since Mr. Holt had the benefit of a research note, rather character limits of a tweet, he added this:

"After accounting for USD movements since the election, U.S. equities have substantially underperformed the rest of the world, and that relative underperformance may be more vulnerable if viable tax reforms are not achieved given my belief that such expectations are already loftily priced against his remark that stock performance 'will grow by leaps and bounds' if tax reforms are passed."

U.S. markets have, of course, been on a tear since Mr. Trump's election, buoyed, in part, by the tax reform he keeps promising but we never see. (And now, it seems, someone might just put a Corker in that bottle.)

The Dow Jones industrial average is indeed up about 25 per cent. But more from Mr. Holt:

1: "Perhaps in the absence of tax reform hopes, U.S. equity valuations would not be as lofty as the all-time high in the Shiller 10-year cycle-smoothed [price/earnings] with only two exceptions being 1929 and the dot-bomb era."

2: "Perhaps if the [Federal Reserve] were not the only one of the major central banks to have materially hiked to date, then U.S. equity underperformance wouldn't be as great."

3: "Perhaps 2018 will bring more rotation away from outperformance across other global equity markets.."

4: "Alternatively, perhaps U.S. equity valuations would be higher yet if not for global concerns about the U.S. administration turning more inward, isolationist and protectionist while hardly defusing geopolitical risks and being unable to advance anything in Congress – much of which is the Trump administration's doing."


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It would take a truly abysmal [earnings] season to disrupt the pre-Christmas rally

Chris Beauchamp, IG

Markets at a glance

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Metro to sell Couche-Tard holdings

Canadian grocer Metro Inc. is selling off most of its stake in Alimentation Couche-Tard Inc. to help fund the purchase of pharmacy chain Jean Coutu, The Globe and Mail's Nicolas Van Praet reports.

Metro said late Wednesday it struck three separate deals to parcel off the bulk of its 32.3-million-share stake in convenience store operator Couche-Tard, confirming previous plans to sell the asset. On Oct.2, when Metro announced its takeover of Jean Coutu, the stake was worth about $1.84-billion.

The first transaction will see Metro sell 11.37 million shares in Couche-Tard to dealers. The second will see Metro sell a similar amount to Caisse de dépôt et placement du Québec at a price of $57.17 for proceeds of $650-million. These shares are Class A multiple voting shares, giving the Caisse an additional 7.7 per cent stake in the supervoting shares of the company. The pension fund's total stake remains under 10 per cent and it will not have board representation, said Caisse spokesman Maxime Chagnon.

Metro has also entered into a private agreement to sell 4.37 million Class B subordinate voting shares to Couche Tard for cancellation.

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