Something remarkable happened following the election of Donald Trump as the 47th President of the USA. The Dow Jones Industrial Average (DJIA) topped the 44,000-point barrier for the first time ever. Then, several weeks later, it briefly eclipsed 45,000.
The stock market is in full melt up. The Trump bump is powering share prices higher. Investors and speculators expect a bright future. And their intentions are to exploit it for personal profit.
The general logic is that Trump is pro-growth and pro-business. That his policies will unshackle the economy from the restraints of burdensome and onerous regulations. That he will stick it to foreign competitors and Make America Great Again. That corporate earnings will soar. And thus, stocks will become even more valuable.
The logic, unfortunately, is braindead. Stocks are already priced for perfection. Any positive effect Trump’s policies may have on the economy will take several quarters or more to show up on bottom lines. Yet share prices are increasing as if such an earnings boost will be immediate. Continue reading