Ripples across the pond as Trump breezes in

Cathy Dixon

THERE'S no stopping President Trump as he continues his international travels, making headlines and seemingly causing controversy wherever he goes.

On his latest trip to Europe, he hinted that the US might withdraw from Nato, stunning European leaders with a string of attacks on the members and resulting in the most divisive summit in the history of the alliance.

Turning his attention to the UK, far from strengthening the 'special relationship' he proceeded to attack Mrs May's approach to Brexit, suggesting that she should sue the EU. This attempt to interfere in domestic issues is unprecedented, even by Mr Trump's standards.

Clearly there's never a dull moment,and the summer is not the quiet time for the markets that is so often associated with this time of year. Indeed, after a prolonged period of low volatility it is notable that on both sides of the Atlantic we have seen an upturn in recent months. The S&P 500 reached a high in January, exceeding 2,870 and it dipped to 2,600 in February, although it is still trading at above 2,800.

In contrast, the FTSE 100 saw its low point in March, when it fell below 6,900 but since then it has risen strongly to hit a new high in May when it briefly reached 7,900. The health of the US economy has been trumpeted by the President and the latest monetary policy report from the Federal Reserve (released last week) does little to contradict a positive outlook.

It states that the central bank is still positive on the US economic outlook, which indicates that the cycle of monetary policy tightening will continue into next year and potentially the year after. However, there is disagreement from the bond market, which is anticipating an end to the tightening cycle as early as next year. The message from the market is that there is a fairly high risk of economic slowdown or recession at the end of 2019.

In recent times the US equity market has consistently outperformed its UK counterpart. Over the past five years the S&P 500 has risen by over 65 per cent and the Dow Jones industrial average by over 61 per cent. The FTSE 100 has put in a far more modest performance, rising just 15.5 per cent. This pattern holds true for 2018 as well – so far the US indices are up by 14.6 per cent and just over 16 per cent, whereas the FTSE 100 is up a modest 3.4 per cent.

Of course, within this are individual stock performances which break the mould, but we are still seeing consistently higher predictions for economic growth in the US than the UK for this year and next. Despite the colourful political situation in the US, it seems unwise to bet against the economy yet, although there could well be fluctuations in the currency market which favour the FTSE 100 (sterling weakness) as uncertainty continues to dog the immediate outlook for the UK.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.

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