Dow plunges as investors finally concede Trump is not the US economy’s panacea

It has taken longer than it should have, but finally US markets are responding in such a way that it would appear investors are looking beyond what President Trump may or may not be able to deliver in terms of weighing up the economic environment, and in so doing they have started to vote with their hard earned investment dollars.

After the Dow dropped 370 points overnight, plenty of analysts and market commentators in the US conceded that core economic data and corporate results didn’t support the massive rally that had occurred since the presidential election.

However, investors must be wondering why these objective views haven’t been aired earlier. It appeared that nobody wanted to spoil the party or errantly call the end of the rally too early.

Not only is the Trump trade dead, but his broader reputation has taken a battering in the last week in relation to releasing classified information to Russia as well as the sacking of FBI director, James Comey.

Mindless trump trade trashed with no material fiscal policy to show for it

However, in terms of the outlook for the sharemarket, it is more a case of what Trump hasn’t done than what he has done. The big ticket items like healthcare, tax reform, infrastructure development and a streamlining of the financial industry either haven’t been delivered or are nowhere near ratification.

One of the real concerns for the US and the rest of the world at this stage is the fact that the ‘Trump on the run’ will be even more dangerous when the environment is unstable. Nothing breeds patriotism like a good war even if the leader has proven he is inept.

One would hope that the ‘ends justify the means’ style of Trump leadership, whether it be at a corporate or presidential level doesn’t have deeper ramifications.

With impeachment potentially back on the table, polls plummeting and British bookmakers saying that the odds have more than halved on Trump going full-term anything is possible and investors will need to be prepared to expect the unexpected.

What are the numbers saying

While the Dow fell 1.8% to close at 20,606 points, it is worth noting in terms of what may lie ahead that nearly 100 points were shed in the last hour of trading.

This could suggest that heavy selling will flow into at least the next trading session, but it also arguably indicates that the more moderate losses in the UK and European markets which were closed by that stage could be much more extensive looking forward.

The highflying NASDAQ fell nearly 2.6% or 158 points to close at 6011 points.

The FTSE 100 spent most of the first half of the session in positive territory, but as soon as volatility in US markets became apparent the index fell sharply, eventually closing at 7503 points, representing a decline of nearly 0.3%.

European markets were hard hit with the DAX and Paris CAC 40 falling 1.3% and 1.6% respectively to close at 12,631 points and 5317 points.

On the commodities front, oil gained ground to push above US$49 per barrel.

Not surprisingly, gold’s safe haven status was embraced as the price of the precious metal increased nearly 2% to close at US$1260 per ounce.

There were only marginal movements in base metals with copper and nickel coming off slightly, while zinc was relatively flat.

Lead was the main mover gaining more than 1% to close at US$0.95 per pound.

While the Australian dollar slid early in the US session, this was reversed as it finished broadly in line with the previous close, hovering in the vicinity of US$0.743.

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