The failure of the Trump administration to get its healthcare reforms through Congress raises serious questions over its ability to deliver on corporate tax cuts and infrastructure spending plans.

This in turn is putting pressure on the financial markets and could lead to the gains accrued during the so-called Trump rally being reversed.

The Dow Jones index in the US closed down for the eighth straight day on 27 March.

Trump’s situation is relevant to investors holding UK stocks, as we now explain.

The table shows the top performing names in the FTSE 100 between Trump’s shock election win on 8 November
2016 and the subsequent period running to 24 March 2017, before the healthcare defeat.

Many of these names saw their share prices rise as markets priced in likely benefits from Trump policies. Therefore many of these stocks could be vulnerable to a negative share price correction if investors lose all faith in Trump delivering on his promises.

Financial stocks rose on the hope of potential looser regulation in the US extending to the UK and the likelihood of higher interest rates.

Commodity shares were lifted by anticipated demand for raw materials to service ambitious infrastructure plans. Equipment hire business Ashtead (AHT) was seen as a potential beneficiary once this activity got underway.

AJ Bell investment director Russ Mould says this offers ‘a timely reminder that long-term investors in stocks are better served by focusing on company cash flows and valuation than second-guessing what politicians are going to try and do’.

On 24 March Trump agreed to pull his so-called Trumpcare plans after failing to secure enough support.

If he couldn’t overturn Obamacare, hated by US conservatives, it seems sensible to ask if he will be any more successful on tax cuts and infrastructure.

ETX Capital analyst Neil Wilson comments: ‘Fiscal expansion might be easier to get through, or it might be harder. We just don’t know yet what the Republican Party is likely to do.

‘We do know that there are a number of fiscal hawks among the Republicans who are ideologically opposed to the sort of fiscal expansion Trump wants.

‘That is a significant roadblock and may make progress very hard. Exploding the deficit is not going to sit well with many.’ (TS)

‹ Previous2017-03-30Next ›