Market Memo: Maybe Trump is proving a point


Each day we read about turmoil in the White House, discontent on Capitol Hill and a divided House and Senate unable to get anything done. Meanwhile in the real world, inflation-adjusted U.S. GDP grew at a 3% annual rate in the second quarter, up considerably from a slow 1-2% average over the last eight years. The U.S. manufacturing and services ISMs remain robust, manufacturers are hiring at a record pace and small business confidence remains at multi-decade highs.

The point: perhaps President Trump, intentionally or not, is showing the American economy is best served by being left alone. The economic event of the year that has contributed to domestic growth and investment essentially has been Washington staying out of the way. While the media focuses on D.C. drama and lack of legislative progress, small businesses are focusing on investing in their businesses—and for the first time in a while, not looking over their shoulder for another regulation or mandate from the 202 area code.

This notion is working in the stock market as well. While the immediate post-election jump in equities was focused on the potential Trump agenda awakening a sleeping U.S. economy, causing risk-on sectors such as metals and energy to rally, the equity market this year has responded in a somewhat opposite way. The best performers have been technology and health care, two sectors that historically have grown independent of the health of the broader economy. Companies in these areas traditionally have created their own growth through innovation in products and services.

Some examples: despite all the focus yet lack of action from lawmakers on health care, this sector continues to both contribute a significant amount of earnings to the S&P 500 and invest those profits at a record pace into therapies that make us all healthier. In technology, the lack of a national energy policy has done more to drive new investment that has the U.S. on the road to energy independence in a few years. And events such as the past week’s Equifax data breach will only spawn further innovation and investment in technology.

The point: investors can continue to worry about Washington’s dysfunction and the negative impact on the economy, or they can ignore if not embrace it and invest in companies that continue to innovate, grow and profit from ideas—not policy.