Markets keep on soaring on the third week after Donald Trump’s election surprise. Many US stocks hit historical highs, and it seems like the NYSE continues advancing by inertia. The elation also spread around to oil markets, due to a positive sentiment among OPEC members about a deal to curtail production. Russian officials, are also encouraged by the signs of an emerging deal. In both cases however, there might be too much good will and not enough fundamentals to back the optimism.
President Trump’s Economic Policy is anyone’s guess
The markets still don’t know what a Trump administration will look like or how it will affect international trade. Some of the positive sentiment on Wall Street stems from the promise of renewed investment in infrastructure. Nevertheless, a lag in international commerce may derail the advances. Trump was an anti-trade candidate and although he could moderate his stance, he might not. That is a risk investors will have to take into account.
Less Trade can Drive Oil Prices down
If Trump indeed acts to curtail global trade, this could have an adverse effect on demand for oil and other raw materials. If the Chinese slowdown together with the advent of fracking, cut oil prices in half over the last 2 years, a slowdown in trade could offset any gains from an OPEC agreement. Even if OPEC members do agree on a production cutback and they implement it – which would be already unusual – Trump holds the ultimate oil price card.
Investors should also be looking at Trump’s environmental policies. His administration could open the possibility for exploration and exploitation of fossil fuel reserves in places where Obama imposed moratoriums, limits or made it outright illegal to extract oil and gas. Then there is also the issue of the Keystone XL pipeline, which would make Canadian oil more competitive, thus putting a downward pressure on oil prices.
Anything can happen
In the meantime markets keep on partying. The inertia and the excitement can be short lived. Trump appointments over the next couple of weeks can give investors a more accurate indication of where his administration will be going. However, investors must assume the future is highly uncertain under president Trump and should act accordingly. We are still 3 months or so away from understanding the ramifications of his policies better.