It has only been six months since Donald Trump took to the oval office of the United States but the occupation has caused a flurry of activity in the financial markets. Of course, that was not necessarily unexpected, but his constant flip-flopping over cabinet appointments and policy promises have been hard to follow.
You can be certain, though, that one thing has not wavered: the market. As a matter of fact, the Dow Jones Industrial average surpassed 22,000 on Wednesday morning, for the very first time. The jump was an 11 percent surge driven by recent bullish activity from retail investors. And strong corporate reports helped support the growth, particularly on the news of Apple performing better than it had expected in terms of both profit and revenue for the quarter.
For Trump, the soaring Dow Industrial Average index is a sign of economic health and strength in the United States. He continues to boast that this upward climb is definite proof that his policies have been on point. At the same time, though, investment experts argue that it might simply be Trump’s promise to cut regulations and taxes that has stirred the proverbial pot; since there really has not been much legislation to help them.
Atul Lele is a chief investment officer for the Nassau, Bahamas-based investment firm Deltec. He says, “Whether you like the administration, the people, the rhetoric or not, there is no overstating just how powerful the animal spirits have been. You are seeing it in the data and it is evident in the financial markets as well.”
Truly, the voracious appetite of investors have helped to move the market to where it is today but it is also important to recognize that some of this rally might have come out of the devaluation of the US dollar. As a matter of fact, the dollar has fallen significantly against not only the euro and the yen but also against the far more volatile (and less likely competitors) Mexican peso and the Brazilian real.
Even the renminbi, of China, has gained against the dollar; an significant shift since President Trump has continuously criticized the currency for being artificially low (with some accusations of manipulation).
Lele goes on to say, “Dollar weakness means that there is increased liquidity all around the world. And all that is flowing into carry trades.”
Now, “carry trade” is a financial jargon which basically just describes the money flow from low return assets into those assets which promise a higher return.