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"Trumpflation" Fears Setting In?

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Friday, February 24, 2017

Market futures are down in the final day of market trading for this holiday-shortened week. Yet it’s tough to see exactly why, especially with a dearth of new data hitting the tape, particularly on the domestic side. The S&P 500 is down 11 points in today’s pre-market, the Dow is -84 and the Nasdaq -31. All three remain at historic highs, and these pullbacks represent nothing so much as another pause in the bull rally.

There are some things to generate concern among market participants, but almost all of them are relatively remote: concerns about French nationalism pulling another major country toward insular (anti-global) policy measures, U.S. retailers continuing the purge of open shopping mall locations, steel companies got pounded Thursday on reports about a delay in U.S. infrastructure spending, and border-adjustment tax assertions growing the seeds of doubt amid the promise of a big tax reform package passing through Congress later this year.

Euro markets traded down Friday, as the campaign of right-wing presidential candidate Marine Le Pen continues to lead in French polls, indicating the nationalist movement seen in the Brexit and Donald Trump electoral victories may come to the world’s 6th largest economy (by GDP, including the EU as a whole in 2nd place). Even more than the stability of French trade established over decades of peacetime existence, the European Union itself was originally largely based on French initiatives to bring the Eurozone into a singular unit in order to compete globally with the U.S. dollar and German economic dominance regionally.

JCPenney is the latest major retailer to announce a decision to close up to 140 locations, as well as some fulfillment centers. This follows other reports during Q4 earnings season for retailers — perhaps better than expected overall, but still somewhat traumatized by the massive encroachment of Amazon (AMZN - Free Report) and other online retail establishments — that store locations, especially within shopping malls, are necessarily scaling back. This has had an effect on Macy’s (M - Free Report) share price recently, among others.

President Trump’s announcement to delay an infrastructure plan until 2018 in favor of pushing tax reform legislation this year was met with a harsh sell-off in steel prices yesterday, and this looks to have ripple effects through the myriad industries affected by steel cost and production. Happily joining in the Trump Rally of the past quarter-year, investors now seek different near-term growth opportunities in the stock market.

The smooth sailing seen earlier in the week for tax reform, especially after Treasury Secretary Steve Mnuchin’s expression of a strong interest to pass a major reform initiative through Congress by the August recess, is hitting some headwinds among analytical concerns about the more-controversial border-added tax (BAT) that has less congressional support. There appear to be two main forces instructing White House policy in the early weeks of the Trump administration: the pro-growth Wall Street cash windfall side, and the more idealistic, less pragmatic protectionist wing among the president’s main advisers. We hope to see some fog clear in this regard in the upcoming weeks.

That said, the S&P 500 remains on track for the best monthly performance since March of last year. The bulls have won so far in 2017, and bear market concerns are as yet relegated to the shadows.

Mark Vickery
Senior Editor

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