Will America be great again?

Maike Currie
Maike Currie
Fidelity Personal Investing5 January 2018

Donald Trump’s probably not having a very good day. Publishers of ‘Fire and Fury’, an explosive tell-all on the US president, have decided to bring forward the release of the book to today. Claims in the book range from how the president and those around him never expected to win the US election, believing ‘losing is winning’ to cringe-worthy details of how he’s turned his White House bedroom into a TV-watching retreat - installing three television screens and dining on McDonald’s cheeseburgers (because he’s paranoid someone will poison him).

Whether these allegations are true or not, and how much damage they can do to his presidency, remain to be seen. The US president could have opted to take a page out of the UK Royal Family’s book - whenever a scandal hits the Royals, their approach, without fail is quite simple: ‘don’t explain, don’t complain’.

Of course, that’s not really Trump’s style. Instead he has embarked on his typical twitter tirades alongside appointing lawyers to stop the book’s publication and engaged in a very bitter and public fallout with his former senior adviser, Steve Bannon. Unsurprisingly, the book’s pre-sales have already pushed it to the top of the Amazon bestseller list.

Away from Trump’s ‘Fire and Fury’ there’s another important release today - one that will no doubt be closely watched by investors: US jobs and wages data. Today’s numbers come out against a backdrop of soaring stock markets, as optimism over global growth shows little sign of abating.

But as we have pointed out on previous occasions, no other country currently has the potential to alter the investment landscape quite like America, not least since President Trump unveiled his ‘make America great again’ ambitions for the economy a little over a year ago.

Today’s payroll figures will not only play into future expectations for inflation and the pace of monetary policy tightening by the Federal Reserve, it will also have an impact on global sentiment. Scroll through the minutes of the Fed’s December meeting and you’ll see concerns mounting over how low levels of unemployment will spur wage increases and push inflation higher. The minutes also flag the risk that Trump’s tax reforms could create inflationary pressure and push the Fed to raise interest rates more quickly than anticipated.

Already investors are getting jittery about the prospect of inflation in the US returning with a vengeance. According to the Financial Times, money is flooding into funds that protect against higher inflation with US-focused funds accounting for the biggest chunk of cash going into inflation-protected bonds, as commentators dub higher inflation as “one of the most under-appreciated risks of 2018.”

Meanwhile, investors are turning their backs on US equity funds, instead switching into global equity funds and emerging markets given that US valuations are the most stretched in the world.

That said, it’s worth noting that betting against the US market would have been an expensive mistake throughout the nine-year bull market since 2009. There are still plenty of reasons to be positive about the US, not least given it is home to a number of high quality, growth companies, known for their defensiveness.

We’ll discuss the US market in more detail next week, when my colleague Tom Stevenson publishes the first Investment Outlook of 2018. As usual Tom and I will be presenting the Outlook and taking questions from investors via an online webcast on Tuesday at 7.30pm.

It’s free to all and no registration is required. If you can’t make the live webcast, you can watch it in catch-up after the event.

Important information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.