To be bullish on new Fed chief Jerome Powell or not to be, that is the million dollar question.
Powell's plain-spoken testimony yesterday has prompted some on Wall Street to say it's time to sell out of the Trump trade because of concern about rising inflation, ballooning budget deficits and higher interest rates, all things that can deter equity investors from putting more money into stock markets that are already hovering around record highs.
On the other hand, investors have to consider the conditions that have generated the Dow's better than 25% gain since Donald J. Trump was inaugurated more than a year ago: principally a laissez-faire government stance that supports corporate profits over virtually any other imperative.
The tax cuts passed by Congress are only part of the reason why equity investors should stay in the market. Companies including Cisco Systems Inc. (CSCO) , Lowe' Companies Inc. (LOW) , Applied Materials Inc. (AMAT) , Action Alerts Plus holding Alphabet (GOOGL) , Pepsico (PEP) , another Action Alerts Plus holding, and Apple (AAPL) are all planning massive stock repurchases, heralding rising prices. Apple is in the midst of completing a whopping $210 billion share repurchase plan, to be precise.
Investors will also account for a governmental regulatory regime that promises to take it easy on any corporate malfeasance that may arise. The leaders that President Trump has picked to head agencies ranging from the Interior and Energy Departments, to the EPA, the FCC and the CFPB are all seen as more likely to support the agendas of their corporate constituents rather than consumers. That should support rising equity prices.
And Trump's decision to turn away from international agreements including the Paris climate accord and the Trans-Pacific Partnership, as well as plans to increase tariffs on imports including steel and aluminum, give U.S. corporations a head start in cornering the U.S. consumer market, the richest in the world, even as a falling dollar makes imports more expensive and less attractive.
Even concerns about rising Treasury yields may be overblown. U.S. economists at Deutsche Bank said on Monday that Treasury yields had "significant scope" to rise further before they would roil equity markets or weigh on the U.S. economy.
The Trump trade will keep rolling.
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