US Markets

Don’t stand in the way of the Trump train, says HSBC’s Bloom

Traders on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Don't stand in the way of the market now as you'll be crushed by its momentum, says David Bloom, HSBC's global head of foreign exchange strategy.

"The world believes all of a sudden in 'Trumpflation' and there's nothing to stop them - there's a religious belief in it," Bloom told CNBC's Squawk Box on Tuesday, referring to the anticipated reflation of the economy under President-elect Donald Trump.

Whereas prior to the election, Bloom pointed out, it was rare to hear a good word about the President-elect among investors, now the opposite is true.

Despite the vagueness of his policy proposals, investors are giving a lot of credence to Trump's claims that he will successfully jumpstart growth through measures such as ramped-up infrastructure spending and tax cuts.

The Dow Jones Industrial Average closed at an all-time high after yesterday's session, while the S&P500 tapped a fresh all-time high before finishing slightly negative for the day. Meantime, other key U.S.equity indices such as the Nasdaq and Russell 2000 are also hovering around record-high levels. Indeed, the latter has jumped nearly 15 percent since the U.S. presidential election in early November.

All aboard the Trump train

Trump policies point to near-term USD strength: HSBC’s Bloom

The less growth-friendly elements of his platform, such as slicing immigration numbers or implementing protectionist trade measures, seem to have been ignored by the market for now.

"The market's in the mood that everything good he has said he will achieve and everything bad he has said won't happen. When you get a market in that sort of mood, in a market that has faith, you can't stand inits way because you can't stand in the way of a good story," said Bloom.

"I ain't standing in front of the Trump train now cos you'll just get crushed," he quipped.

Markets have already fully priced in the expectation of a Federal Reserve (Fed) rate hike on Wednesday with analysts now debating the extent to which the U.S. central bank will pursue additional hikes next year.

According to Bloom, current market momentum will push 10-year U.S. government bond yields in the shorter-term to 2.5 percent and the Fed will raise rates again at least twice in 2017.

Dollar on a roll

Donald Trump
Gretchen Ertl | Reuters

Turning to the dollar, HSBC's foreign exchange strategist said these effects will all drive the U.S. currency higher.

"The dollar is on a roll, the dollar's got momentum and for the moment, it's unstoppable, don't try and stand in its way," he recommended.

Looking at what could cause the good times to halt, Bloom said there is nothing between now and Trump's January 20 inauguration that will change people's minds. Until that point, he does not need to deliver.

According to Bloom, however, from that point onwards the clock will start ticking and the goodwill he has successfully built up will start to erode if the President-elect does not show he is making concrete headway with his ambitions to reflate the economy.

While some believe 2018 will be the point at which investors run out of patience if they have not seen progress, Bloom believes we may see signs of market agitation as early as next June.

However, for the time being, the market is fully buying into the optimism surrounding Trump, says Bloom.

"We have to see disappointment before it comes to an end. There's a belief and you can't stand in the way of people with belief."

Follow CNBC International on Twitter and Facebook.

Related Tags