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Oops! Has Donald trumped the stock market into a dive?

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By Peter Switzer

Stock markets are now pondering whether the experiment with an entrepreneur, outside-the-square politician/US President was the gamble we didn't have to have.

The Dow Jones Index was down 204 points — the biggest one-day drop since May, and you’d have to be a Trumpofile not to blame him for this loss of wealth for market players. As the chart below shows, this isn’t a great time of the year for stocks anyway.

On my TV show last night, I discussed with one of my guests how, from a seasonal point of view, August and September aren’t great months for US stocks but to throw two political bulls at a gate in Donald and Kim Jong-un talking “fire and fury” and bombing Guam, you have a recipe for a stocks’ sell off.

And it’s even more understandable when the US stock market indices are at record highs and most market watchers, like yours truly, have been pondering when a ‘healthy’ pullback was going to happen.

Of course, provided nothing stupid actually happens involving fire and fury, then this interlude will end up being a buying opportunity for one very good reason. And what’s that?

Well, while the US political story is looking a little worrying, the actual economic story is supportive of stocks at record-high territory and so have the current reporting season’s earnings.

By the start of this week, AMP Capital’s Shane Oliver assessed the US reporting season this way: “Of the 420 S&P 500 companies to have reported, 77% have beaten earnings expectations and 68% have beaten on revenue. Earnings look like coming in around 12% year on year, which is almost double the initial expectation.”

Case proved. Earnings are very good so this stock market sell off is down to Trump versus Kimmy boy!

For the record, the Trump trumping of the North Korean leader overnight was contained in the following on his fire and fury warning earlier in the week: "If anything, maybe that statement wasn't tough enough." 

Image: North Korean leader Kim Jong-un (left) and U.S. President Donald Trump (right). Source: AAP.

This was told to reporters at his New Jersey golf club, which says a lot about this very unique US President. It nearly looks like a comical skit of someone impersonating the most powerful leader in the world sitting at the 19th hole and pondering when he was going to club his arch rival into a bunker!

The big problem is that this is not a comedy. This is a drama and if we don’t get a happy ending, stocks will sell off a lot more and buying gold will again be the smartest investment idea in town.

Let us pray that this Donald Trump-Kim Jong-un thing doesn’t get any crazier.

Crazier than what? Try this from Mr Trump overnight: "The people of this country should be very comfortable, and I will tell you this: If North Korea does anything in terms of even thinking about attack, of anybody that we love or we represent or our allies or us, they can be very, very nervous," Trump said. "I'll tell you why, and they should be very nervous. Because things will happen to them like they never thought possible."

As I said, this isn’t a comedy and we won’t be laughing on the stock market today.

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Published: Friday, August 11, 2017


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