In anticipation of tax cuts, stimulus spending on infrastructure and repatriation of US corporate offshore assets the US stock market is booming. The outlook is not so bright in developing markets. Bloomberg asks if this is back to the 90’s for the stock market.
Donald Trump’s election as U.S. president is driving global markets to levels not seen in nearly two decades – but in completely different directions. And the “polarization'” of emerging and developed markets is all part of “Trump reflation,” argues Divya Devesh, a foreign-exchange strategist at Standard Chartered Plc in Singapore.
In the post-Trump era, emerging markets have been feeling the heat. Malaysia’s ringgit plunged on Tuesday to be less than 1 percent from the 4.48 per dollar it reached in September of last year, the weakest level since the Asian financial crisis in the late 1990s. Sentiment is little different in the country’s equities market, where investors sold 1.1 billion ringgit ($248 million) of shares through Friday in the biggest weekly exodus since June.
While oil producing countries are looking to devalue their currencies the pain is wide spread in nations that were huge suppliers of raw materials to China just a few years ago. Meanwhile the S&P 500, Dow Jones Industrial Average, NASDAQ Composite Index and Russell 2000 Index to record levels. Does this really compare to the 1990’s and if so will we see a dot com crash at the end? And will all of this end up helping or hurting the disaffected who voted Mr. Trump into power?
1990’s Economic Boom
When Bill Clinton was in the White House there was an economic boom. The Wharton School of Business published a review of the stock market boom and gains in productivity in the 1990’s.
During the second half of the 1990s, the United States experienced the continuation of one of the longest economic expansions. The distinguishing characteristics of this period can be summarized as follows.
- High growth rates of output, employment, investment and wages.
- High growth rates of labor productivity.
- A stock market boom.
- A financing boom for new and expanding firms.
- A sense of moving towards a “New Economy”.
The down side was that the market crashed in the end, personal debt went to sky high levels and the middle class was left out. The Economic Policy Institute discusses how the 1990’s boom was a bust for the middle class.
For the last few years, the American economy has been on a real bender. Consumer spending, fueled by mounting personal debt and a gravity-defying rise in the stock market, has set off an economic boom that has boosted job prospects and incomes across the board. Like any night out on the town, however, all good things must eventually come to an end. This time, the negative personal savings rate, the spiraling trade deficit, and the threat of a sudden drop in the stock market are the leading candidates to spoil the party.
The big question facing middle-class Americans is: when we wake up to smell the coffee, what will we have to show for the 1990s? The short answer is: not much, even if Congress passes an ill-advised tax cut sometime this year.
As most will remember congress did pass a tax cut and Bush II signed it. The end result was the market crash of 2008 and the worst recession in three quarters of a century.
If Trump policies lead us back to an economic boom how should investors capitalize on this opportunity and at the same time protect themselves against eventual catastrophic losses? More to come…