As the U.S. stock marketheralds the "Trumpiversary" — the one-year mark of the 2016 presidential election and a 21 percent gain in the Standard & Poor's 500 — pundits of both politics and business are asking the same question.
Did investor confidence in President Donald Trump do this?
One answer comes from international markets, which have been outpacing the U.S. year-to-date, driven by a roaring comeback in emerging markets. As much as Trump wants to claim credit for reviving animal spirits in America, a good chunk of U.S. economic and earnings momentum can be traced to trade with countries whose access to U.S. markets Trump vowed to restrict, and especially to a resurgence in China, which during the campaign Trump vowed to declare a currency manipulator and to slap tariffs on Chinese goods.
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"Emerging markets' macro fundamentals are extremely good," said Ajay Kapur, a Hong Kong based EM strategist for Bank of America Merrill Lynch. "Most, except for China, have low debt. All of them have trade surpluses. They've cut back on capital expenditures the last few years. It all sets up for a pickup in returns on equity and expanding profit margins. This seems to be a synchronized global recovery, and it has been a long time since that has happened.''
Indeed, history and fundamentals indicate that U.S. markets rarely get much of a push from new presidents, said Sam Stovall, chief equity strategist at CFRA. Still, CFRA says consensus earnings estimates for the year are rising, with S&P Global now predicting a 12.6 percent gain in S&P 500 profits for the four quarters ending in September 2018, with sales rising 6 percent. That gives U.S. markets more room to run.
Prospects for rising interest rates make bonds less attractive, leaving even more room for the S&P 500 to rise more, CFRA says. Prospects for a tax cut from Trump add to the potential, Stovall said.