Yesterday was the first day since Election Day that stock market investors started to discount the possibility that everyone in Washington is losing their minds.
The place has been unhinged for a very long time, but it seems to have gotten much worse since Donald Trump occupied the White House on January 20.
Indeed, there seem to be a very large contingent of Democrats who believe that it is an occupation and that Trump’s presidency is illegitimate. Their not-so-subtle objective seems to be to get him impeached.
During World War II, posters warned American citizens: “Loose Lips Sink Ships.” Now there is buzz that Trump’s loose lips could sink his presidency from the get-go, before he gets to go on with his agenda. Everything he says or tweets triggers a daily firestorm of media pundits declaring that Trump has gone too far. For many of them, Trump was always a sinner, so from their perspective he had already fallen from grace. White House spokespersons have been ineptly playing whack-a-mole, trying to beat down the latest innuendos inspired by their all-too-talkative commander-in-chief.
I am not a preacher, so I don’t do right vs wrong. As an investment strategist, I do bullish vs bearish. Up until yesterday, the stock market seemed to tune out the ear-splitting noise coming out of Washington since Election Day. Instead, investors focused on the signal, which has been Trump’s commitment to cut corporate taxes. Now that Trump seems to be increasingly getting sucked up by the swamp rather than draining it, investors are losing confidence in his ability to get much of anything done for a while. The one important exception is deregulation, which remains a bullish development for the stock market. Furthermore, as Joe and I have been chronicling, the US and global economies are growing, and so are S&P 500 revenues and earnings.
So, notwithstanding the worsening cacophony coming out of our nation’s capital, Joe and I are sticking with our S&P 500 stock price target of 2400-2500 for this year. On Monday of this week, the index closed at a record high of 2402.32. Under the circumstances, we must change our S&P 500 earnings forecasts. We still expect a significant corporate tax cut, but it is less likely to boost earnings this year than next year. If earnings are not boosted until next year, then instead of $142.00 per share this year, our estimate would be $129.00. But next year, earnings could be $150.00 rather than $136.75. That would bring us closer in line with the latest consensus of industry analysts for this year and next year at $131.57 and $147.10.
The Founding Fathers created a political system of checks and balances, which is often called “gridlock” these days. Ironically, it may be more gridlocked now than ever before, even though the Republicans have the White House and majorities in both chambers of Congress as well as the Supreme Court! The Founders were realists and recognized that humans are not angels. So they designed a political system to govern humans, whom they judged had long ago fallen from grace. It all started when Adam and Eve disobeyed the Good Lord and ate the apple from the Tree of Knowledge.
Trump’s adversaries are hoping for a similar “gotcha moment.” They seem to believe that they have it in “Comey’s Revenge,” which is reportedly a note-to-self written by the Trump-ousted former FBI director. Second-hand sources claim that the note claims that Trump asked James Comey to stop investigating former National Security Adviser Michael Flynn shortly after Flynn had resigned. If true, that would clearly be an obstruction of justice by the President. Not so clear is why Comey kept the note on file until he was fired, and whether a request is the same as an order. This may or may not be the beginning of Trump’s expulsion from the Swamp of Eden.
Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.
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