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Trump’s term unlikely to be the best for US stocks

20 January 2017

Trump’s inauguration as the 45th President of the United States takes place today

Read more: Trump stocks US President S&P

US equities are unlikely to perform better during President Trump’s tenure than under many of his predecessors, analysts fear.

Stocks have soared since November’s shock election result, with the so-called "Trump rally" boosting the S&P 500 by 5.8% and sending the tech-heavy Nasdaq to new highs.

The gains have been spurred on by the Republican’s promises of lower taxes and less regulation, which have strengthened the outlook for corporate earnings across America.

Stats show that the S&P 500 delivered an annualised return of 13.9% under Barack Obama and 15.2% under Bill Clinton, ranking their terms fifth and third respectively in terms of stock market gains.

But with the S&P 500 currently on a Shiller Price-Earnings ratio of more than 282 it is unlikely that it will do better under President Trump, according to ETF provider Source.

"Such a high Shiller ratio is more commonly associated with negative future returns," said Paul Jackson, head of research at Source.

"Valuations are an important determinant of future returns: Reagan and Obama were helped on that front, as were Harding and Coolidge in 1921.

"President Trump does not have that luxury. He should not measure himself by what the US stock market says as I fear the judgement will be harsh no matter what he does."

Trump’s inauguration as the 45th President of the United States will take place on Friday, January 20.

In a note to clients, Mike van Dulken at Accendo Markets said investors hoping that his speech comprehensively outlines his policy plans for the next four years in a "scripted rather than lively off the cuff affair".

"Financial deregulation, infrastructure spending and tax reforms will be the key policy topics markets will be hoping receive some dedicated airtime this evening," Van Dulken added.

Meanwhile, Bank of America analysts have noted a reversal of positions this week, which they described as "partial profit-taking in Trump trades."

Financial stocks have seen their first outflows in 17 weeks on concerns Trump may not follow through with sector deregulation while government bonds registered inflows for the first time in six weeks.

Investors also poured $1.3bn into precious metal inflows this week, the highest level in five months.

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