While 2019 was a year of “dither and delay”, as Mr Johnson put it, we can now look back on 2019 and see the continued effect of Trump on US equity markets and the elimination of Corbyn risk.
The Trump effect
While the average person on the street will quite rightly see Donald Trump as a mad man with a haircut which would lead most men to file a lawsuit against their barber, his economic policies of “buy American, hire American” and corporate tax cuts have seen the S&P500 rise circa 50% in just over 3 years and circa 28% in 2019. Maybe this would imply he isn’t as crazy as he’d like us to believe.
From my point of view, I don’t feel we are yet at the end of this cycle and I expect the US markets to continue to rise although at a slower pace than they did in 2019. With the US election at the end of 2020, Trump is going to want to go into a fight with the Democrats to retain his presidency with a strong economy. This would lead me to think he is likely to agree on some sort of trade deal with China and not want to begin World War 3 against Iran. I believe Trump’s bark is louder than his bite. This has been shown many times in his presidency, especially with North Korea. We all remember the quotes “little rocket man” and “suicide mission” etc… Now he claims to be Kim Jong-un’s friend. Funny how things can change.
Finally, on Trump. I strongly believe he will be re-elected for a second term in office. I also don’t see the impeachment having any impact on the election result and if anything, I actually think his support for re-election has strengthened off the back of this ongoing saga. I will, however, put one wild card in here. If Mike Bloomberg gets the Democratic nomination, he is the only candidate I think would pose any real challenge to Trump getting a second term in office.
From a financial market point of view-Trump or Bloomberg. Neither would back policies that would harm financial markets. Bloomberg would probably have similar policies to Trump but without the noise and chaos that Trump likes to make and attract.
Unlike the US, the UK markets in 2019 were largely unchanged (+5%) until the election results in December which gave the UK markets a 5% boost. This has been the case now for over 3 years following our brave vote to leave the EU since then we have had 3 Prime Ministers in as many years and 2 general elections.
While all this has happened, including a vote of no confidence from his own party, Jeremy Corbyn remained unmoved.
As much as a potential no-deal Brexit has brought a cloud of uncertainty to UK markets, the risk most investors have been concerned about is the risk of having a Corbyn-led government.
My political views are would be considered centrist and I firmly believe extremism (left or right) isn’t a good thing and will nearly always end in disaster, which is backed up by many historical cases of extremism failing.
Yes, we need to ensure the people who work and put their lives on the line in our emergency services and military are well looked after, including in retirement. We also need to put more work in tackling the increase of homelessness. Every day I walk through the city centre of Manchester and witness homelessness and its effects. I’m sure everyone agrees nobody in our wealthy country should be without a roof over their heads.
To enable us a country to look after these people we need a strong and stable economy (remember who said the phrase “strong and stable”?). What wouldn’t allow us to look after these people in the long term would be a weakening economy and a mass increase of debt to GDP, which a Corbyn-led government would have created.
Along with the policy to further increase the tax of the wealthy, this would have also led to significantly less foreign investment coming into the UK, which in turn would lead to fewer jobs and more people needing support from the state. These sorts of policies are dangerous and can spiral out of control quickly.
On top of this, we would have had a chancellor (John McDonnell) who was sacked from his role as Chair of Finance under Ken Livingston’s Greater London council for allegedly fabricating figures. A mixture of fantasy polices and somebody who has a record of budget fraud would have no doubt ended badly for the UK economy.
Looking forward, we as a country need credible opposition to the government, which gives the general public a real choice the next time we go to the polls in 2024. I believe Sir Kier Starmer would provide this, so let’s hope the labour party members give him their backing.
We all remember (New Labour) well I’m calling Boris’s government “New Conservative” due to the nature of how the Conservatives won the latest general election with many usual Labour voters (lending) the conservatives their vote. 1. to get Brexit moving and 2. because ultimately, they didn’t trust Jeremy Corbyn to be able to deliver his fantasy policies. The Conservatives will have to become a central policy party to keep their core vote and more importantly to keep the many votes lent to them by usual Labour party voters. This should mean Boris will have to deliver on his promises to the NHS and other public sectors to ensure they are given the funding they need along with tackling the other things that really matter like climate change and social care.
Something else to remember about Boris is that he isn’t a Eurosceptic and never has been. He, like all politicians, look for ways to further their political career and he saw the referendum in 2016 as an opportunity to do this. Granted, it didn’t quite go according to plan however, it has most definitely enhanced his political career. In my opinion, he expected the leave campaign to lose and he would be the man who will stand up for the UK in Brussels and not be the pushover which many felt David Cameron was. This didn’t quite work out as he planned however, it’s important to remember Boris isn’t against the EU and for most of what they stand for (especially the common market) therefore, I don’t imagine for one second Boris will allow the UK to leave the transition period without a trade deal in place albeit I do expect a delay in the December 2020 deadline. I do firmly believe we will get a trade deal in place potentially by June 2021 (a 6-month delay…)
Now we have some certainty and no more Corbyn risk. I expect the year of 2020 to bring a solid performance of UK markets with the FTSE100 finally breaking the 8000 barrier on the back of more foreign investors dipping their toes into the UK. Once we have a trade deal in place, I feel this could accelerate further although this is something for 2021. I also believe we will see further strengthening in the pound although not yet back to pre-referendum levels. This may take a little longer for confidence in the UK economy to be restored.
There will be, as every year, something which takes us by surprise. However, I feel confident about markets this year and expect our clients to receive healthy returns on their investments.
Thank you for taking time out of your day to read my thoughts, feel free to contact me regarding any of your own thoughts or questions you may have.Back to blog