Volatility should come into play next week, but it is not likely to be caused by President Trump. I suspect Fed Chair Janet Yellen will be the culprit. Since he’s taken office, Trump has fired up both sides of the markets with his directives and comments. He’s caused corrections with his executive orders on trade and immigration and strong rallies with his remarks about tax reform.
Opinions have varied on whether this policy change or that policy change will be good or bad for the economy. I’ve seen headlines saying Trump will cause a trade war. Others warned about protectionism and military conflicts. It seemed at times I had somehow drifted back to October or November 2016 when the “experts” were telling me that the Dow would drop thousands of points if Trump is elected.
I’ve come to the conclusion that the markets just have to get used to Trump’s style. I don’t think investors want silence and I don’t think they want constant tweeting. Professional investors know there is risk in investing. They want to hear something from the candidate so that they can assess the risks.
Investors don’t want a calm Trump and they don’t want a radical Trump. They want him to be himself. It may be that his style is to throw an idea out there to get a reaction then pull back as the negotiations begin. It’s commonly seen in business deals that both parties ask for everything but then find common ground.
This may be what he is trying to accomplish with his immigration plan, for example. I think most Americans want to secure the borders and they want a process to keep criminal elements out of the country. So while Trump’s initial order may have been radical to some, it did open up a dialogue and that perhaps with the courts and Trump’s administration, some common ground could be found.
We may have seen another example of this style of negotiation late last week in Trump’s conversations with China and Japan. A little over a week ago Trump called China and Japan currency manipulators. The headlines were predicting trade wars, and already deciding winners and losers.
However, we may have seen a softer side of Trump on Friday when he made conciliatory comments to China’s President Xi Jinping about the country’s One China Policy regarding Taiwan. According to the market’s reaction, this may have reduced some concerns that Trump would steer the U.S. into a trade war with China. Furthermore, Trump ended the week pledging close security and economic cooperation with Japan.
I have to conclude that once the markets get used to Trump’s style of negotiation there will be less criticism and less of a reactionary response. Investors should focus on the results and stop worrying about Trump’s techniques. Concentrate on what Trump is delivering in terms of economic gains and stop trying to judge him with style points.