(Bloomberg) -- Donald Trump promised Americans a “boom like no other” if they elected him president. But based on the stock market’s performance during his first 100 days in office, it depends on what you mean by “boom.”
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The action certainly has been explosive — just not in the way investors were hoping. By April 30, Trump will have closed out his first 100 days in office. Despite last week’s rally, the S&P 500 Index is down about 8% since his inauguration and on track for its worst run during a president’s first 100 days since Gerald Ford in 1974, following Richard Nixon’s resignation.
It’s a U-turn few on Wall Street saw coming after two straight years of over 20% gains and what was expected to be a pro-growth agenda. Instead, markets swung wildly as Trump slapped tariffs on basically every country where US companies operate — and then suspended some, carved out exceptions for certain industries, and ratcheted up the trade war with China.
The disruptions, combined with the administration’s aggressive push to deport undocumented workers and its mass firings of federal employees, unnerved investors and sent the S&P 500 spinning into its seventh-fastest correction since 1929.
“It was an extreme, for-the-textbooks, systematic risk in its purest form,” said Mark Malek, chief investment officer at Siebert. “The volatility has been wholly different from anything we have experienced in the past, and it indiscriminately spread through all sectors and asset classes like a wildfire, constantly being fueled by random sound bites and shifting policy moves.”
Traders went all in on the America First bet immediately after Trump’s election victory, sending the S&P 500 to its best post-election gain ever. The thinking was the administration would loosen regulations and lower taxes, which would boost growth. But the president has instead focused on his tariff fight, sending markets spinning with each new announcement of levies on trade partners.
“What he was elected for was ‘Make America Great Again,’ the ‘economy will be booming,’” said Eric Diton, president and managing director at Wealth Alliance. “But all the trade uncertainty has actually detracted from economic growth.”
Whiplash After Whiplash
The S&P 500 lost more than 10% in two sessions earlier this month after Trump imposed the steepest US tariffs in a century on April 2. It then soared a week later when the administration reversed direction and delayed most of the duties for 90 days. Stocks have bounced around since then, but traders have struggled to find a direction. Futures on the S&P 500 Index were down 0.1% on Monda morning as traders assessed the latest tariff developments.
“It was whiplash after whiplash after whiplash,” said Dave Lutz, macro strategist at JonesTrading and a 30-year Wall Street veteran.
And Wall Street is bracing for more. Speculators just widened their net-short position on S&P 500 futures to the highest since December, according to the latest CFTC data released on Friday.
The declines in equities since Trump’s inauguration on Jan. 20 have been led by the consumer discretionary and information technology sectors, with footwear company Deckers Outdoor Corp., semiconductor equipment manufacturer Teradyne Inc. and specialty chemicals producer Albemarle Corp. among the biggest losers. Other companies with struggling share prices include Elon Musk’s electric-vehicle maker Tesla Inc., United Airlines Holdings Inc., Delta Air Lines Inc., and Norwegian Cruise Line Holdings Ltd.
Consumer goods makers and the chip industry are grappling with the risk of higher costs from new tariffs, while travel companies are expected to feel the pinch as consumers tighten their purse strings if the economy starts struggling.
“There is irreparable damage done,” Malek said. “Trend and momentum are extremely important in the stock market and they really reflect investor sentiment. Unfortunately these things are very hard to turn back around when they go down so fast.”
Equity positioning remains near the bottom of its historical range, according to data from Deutsche Bank AG, whose strategists last week threw in the towel on predictions for a large advance in the S&P 500 this year.
Meanwhile, Bank of America Corp. strategists warned on Friday that the conditions for a sustained stock market rebound are missing and encouraged investors to sell into the most recent rebound in US equities and the dollar. Foreign investors already got the memo and have been dumping American shares since the start of March, according to Goldman Sachs.
Cloud Of Uncertainty
There’s one word money managers use to sum up Trump’s trade plans and their impact on the stock market: uncertainty.
“We still don’t know what it is that we are trying to achieve with Vietnam, or Canada, or Europe, and we have no idea what success looks like,” said Paul Nolte, market strategist and senior wealth manager at Murphy & Sylvest Wealth Management.
This lack of clarity has prompted investors to turn defensive, wary of headfakes and preferring to wait on the sidelines until there are more concrete policy details. But that’s not the only risk.
“We need to get past this cloud of trade policy uncertainty as it’s holding back businesses from capital expenditures and hiring plans and may also dampen consumer spending,” said Eric Sterner, chief investment officer at Apollon Wealth.
A tariff-induced slowdown in economic activity, and the higher costs associated with it, will crimp earnings growth, according to David Lefkowitz, head of US equities at UBS’s global wealth management arm. He expects profits for S&P 500 companies to be flat this year.
The first-quarter earnings season is showing how Corporate America is equally in the dark. Companies are withdrawing guidance, lowering earnings outlooks, and resorting to unusual solutions to manage the swings. For example, United Airlines issued two sets of profit forecasts, one if everything stays stable and the other if the economy falls into a recession.
“If you look at recessions, they are started by corporations, when they stop hiring people, then start firing people, then stop spending money,” said Siebert’s Malek. He’s looking for opportunities in high quality growth stocks that have been beaten down, but added that he’s buying cautiously.
The latest Bloomberg survey of economists showed that forecasters anticipate the trade war to hit economic growth this year and next, as prices rise and consumer spending takes a hit.
Jim Worden, chief investment officer of Wealth Consulting Group, is looking at health care, financials and consumer staples shares, as well as stocks that have been unnecessarily crushed in the selloff.
Meanwhile, James Abate, head of fundamental strategies at Horizon Investments, said the firm is picking up regional banks stocks. This is “a bad environment for index participation, but potentially an opportunity for active managers to prove their mettle,” he said.
Still, Wall Street is approaching the stock market with a sense of caution. After all, who knows what the next 100 days will hold.
“We are not past the turmoil, and I don’t think we can pass the turmoil anytime soon,” Wealth Alliance’s Diton said. “Trump is who he is.”
--With assistance from Matt Turner and Carmen Reinicke.
(Updates with a line on futures trading in eighth paragraph.)
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