It is good to under-promise and over-deliver. Markets, in particular, respond favourably when things turn out better than expected. That, however, is not Donald Trump’s style. He has never knowingly undersold himself.
Ever since President Franklin Roosevelt’s first 100 days in office, in which the Depression-era leader initiated 15 milestone pieces of legislation, the roll-call of achievement in the first three months has become the benchmark of a president’s early success. Having published a list of 10 measures that he would implement in his own first 100 days, which ended on Saturday, President Trump cannot be surprised that he is now being judged on his performance against those campaign promises.
This matters to investors just as much as voters because Trump’s arrival in the White House galvanised financial markets with his promises to cut red tape, reform taxes and spend heavily on infrastructure. Between Election Day and the end of 2016, the S&P 500 Index rose by 5 per cent. By Trump’s inauguration in January, it was 6 per cent higher and by the end of February it had risen 12 per cent. Since then, however, the market has moved sideways. The Trump bump is in danger of morphing into a Trump slump if the new president doesn’t start to deliver.
Broken contract with America
So what is the scorecard for Trump’s first 100 days? He published a “Contract with the American Voter” in October, making it a simple enough test to undertake. Trump’s self-proclaimed “100-day action plan to Make America Great Again” laid out precisely how he should be evaluated. On that basis, he scores, if you’re feeling generous, 1 out of 10.
Six months ago, he promised America he would: cut taxes; prevent companies moving offshore; start a $1 trillion infrastructure spending plan; provide more school choice; repeal Obamacare; make childcare and caring for the aged tax deductible; end illegal immigration with a wall along the Mexican border; stop violent crime; boost the military and, as he put it, drain the swamp.
Of these, he has come closest on healthcare reform, in as much as a plan has been introduced and has passed the lower house of Congress. However, its chances for passing the Senate in any form are still slim. On the two issues that matter most to sharemarket investors – tax reform and infrastructure spending – there is even less to show.
The tax reform road-map was thin on detail and even sketchier on how it would be funded. The principal idea, reducing the headline rate of corporation tax and simplifying personal taxes, is market-positive on its face. But with no hint of how it might be paid for, and America already $19 trillion in debt, there is next to no chance of the plan getting past the deficit hawks in Congress. Even if it does, the inflationary growth in borrowings it implies would merely trigger a more aggressive rate-tightening cycle from the Federal Reserve.
As for the infrastructure spending plans, Trump is fast running out of time. Building highways, airports, bridges and the like does not happen overnight and with a 40 per cent approval rating (much lower than recent presidents at the same juncture) there can be no guarantee that he will have the luxury of eight years in which to deliver these long-gestation projects.
What’s next
This is not to say the president has not been busy. He has signed nearly 30 other pieces of legislation and about the same number of executive orders. But these are just expressions of intent or reversals of measures the previous administration put into place. These make up the easy part of being president. The genius of the US presidential system is that it makes it hard for a maverick in the White House to do too much damage. It is working as the Founding Fathers hoped it would.
So if the past 100 days have been a disappointment for investors, what might the next 100 hold? There is an old adage that recommends investors “sell in May and don’t come back ’til St Leger Day”. Depending on when in May you choose to bail out of the market, it’s about 100 days until the horse race in September that ends the summer doldrums, according to this bit of market lore.
There is some evidence that markets do indeed perform better on average during the winter months than they do in the summer. Since 1970, the average gain for the S&P 500 Index between November and April has been nearly 9 per cent, while in the warmer months in the US, from May to October, it has been less than 3 per cent.
That is not the same thing as saying the market falls on average over the summer. If you are passing up the opportunity to make 3 per cent, on average, over a six-month period you need to find an alternative for your savings. Neither cash nor bonds will match that return at the moment. This comparison also disregards the trading costs involved in moving in and out of the market wholesale twice a year.
Another reason to disregard the ‘sell in May’ adage is that investors don’t trade in averages. For selling in May to be a useful strategy to investors it would need to be predictable. Our research into the past 20 years shows that, for the UK market, taking the summer off would have made sense exactly half the time. Sell in May worked in 10 years and failed in the other 10. It’s a coin toss.
The reality is that 100 days is too short a period from which to draw any meaningful conclusions, whether political or financial. But in investment, as much as in politics, under-promising and over-delivering is the best combination. Hopefully, expectations are low enough to provide that positive surprise this summer.
Tom Stevenson is investment director of Fidelity International.
