For the stock markets, Donald Trump is a godsend. The markets rallied at the news of his impeding presidency and if Wall Street banks are to be believed, the stocks will go north even in 2017. The cause for this euphoria is simple: it is hoped that Trump and the Republican dominated Congress will relax regulations and taxes and generally get job done as per the President-Elect’s election time pledge.
Forecasts and optimism
The Standard & Poor 500 is at present 2,270 level. It went up 11 percent in 2016, much more than the median average. The S&P has made a number of forecasts for 2017. For big banks, the forecast for Royal Bank of Canada is 2,500 which is about 10 percent up from present levels. The Deutsche Bank, Bank of America, Citigroup and Goldman Sachs are slated to be 2,350, 2,300, 2,325 and 2,300 respectively.
Even consumers and businesses are more optimistic. According to Jonathan Golub of RBC Capital Markets, corporate tax cuts can easily contribute anywhere between five and seven percent to the yearly profits. If he is right, then American stocks will go up by 10 percent from their present levels. He argues that if such optimism and savings means increased spending on new equipment and stores, there will be a much more better boost to profits and economy.
Keeping with the promise
According to Katie Nixon of Northern Trust, the stock market rally may continue for a period anywhere between six and 12 months. She mentioned that the US economy has seen fundamental improvement in its economy and earnings. Nixon’s assessment is echoed by Savita Subramanian of Bank of America Merrill Lynch. She agrees that there is more than an even chance that the market will witness 2,700 at end 2017. This is nearly a 20 percent jump from the present market position.
Subramanian has put forward the argument that the market requires two things to reach there: the President delivering on his policy promises and the euphoria of investors snapping up stocks and selling of bonds. She, however, worries that the market may have priced in a huge infrastructure spending bill and tax cuts. The expenditure on infrastructure already appears doubtful as a number of Republicans are unwilling to spend large tranches of money as it will add more to the massive $19 trillion debt. This is the reason conservative pundits like her have envisaged a gain of only 2,300 for S&P500 in 2017.