Markets Start Waivering Ahead Of Bad News In The Pipeline

Stock marketsStock markets

In the aftermath of Mr Trump’s victory, stock markets surged, building on promises of strong stimuli and sizeable tax breaks. As time goes on, they are reappraising the short-term outlook, since fundamental changes may take more than one year to materialise. No wonder investors are turning cautious, cashing in on early gains.

The new administration will be at pains to convince Congress to indulge in an expenditure glut, combined with a massive reduction in public income. Capitol Hill will likely endorse a huge tax overhaul, much appreciated by grass-root voters. But it may prove reluctant to become entangled in massive infrastructure spending, a costly endeavour which will take too long before it produces tangible benefits. So the promised boom will not emerge before next year. Meanwhile, the markets will live off mere expectations, with little ammunition to maintain the bullish sentiment for any length of time.

There is bad news in the pipeline. Brexit talks may derail or bring a lose-lose outcome; emerging countries may experience another sharp slump; general elections in France and Germany might produce unexpected results; the US protectionist stance may backfire and spark a new trade war. In the face of any of these hurdles, the current market enthusiasm may come to a sudden stop. Sooner than expected, investors will change their attitude and start discounting the risks ahead. A rather bleak correction appears to be looming.



About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.