Donald Trump had a great time at Davos, where he went to have a little gloat. He told delegates his “brand new America” has now recovered from years of dismal “stagnation”. The US is “open for business”, which he reckons is reflected in the booming stockmarket – the Dow Jones is up more than 40% since his election. He pointed to the lowest unemployment since records began, genuinely good growth rates, and the successes his deregulation and tax reform plans are enjoying.
Several firms have already announced cash repatriation and domestic investment plans. We accept that trickle-down doesn’t always work in the way promised, but this round is getting off to a good start. Disney is handing out one-off $1,000 bonuses, Chrysler $2,000, and Apple is giving most employees stock grants of $2,500 to show its own confidence in Trump’s America. You can argue the growth comes at the expense of decency, or that it was all set in motion not by Trump but by the Federal Reserve. However, you can’t deny that, in economic terms, things are looking up, and not just in the US. Every major economy is growing, says The New York Times, creating “a positive feedback loop”. Greater business confidence means more hiring, which puts more money in consumers’ pockets and gives businesses reason to expand again. Win win.
There are, of course, huge risks. Some are political (in this week’s magazine, I note how well things are going in Japan, but a little North Korean escalation and all bets will be off). Some are social (wages need to rise faster to head off the endless rows about inequality). Some are economic. John Stepek looks at how rising bond yields could scupper any exuberance, and our briefing, along with the fates of Carillion and now Capita (whose share price fell 40% this week on a nasty profit warning) are a reminder that too many firms still have far too much debt at time when the price of debt is rising. You don’t want to hold those companies.
So what do you want to hold? If you have faith in Trump’s America, consider the Arbrook American Equities Fund. You can still buy in at a low management fee for founding investors (0.45%), and manager Robin Milway reckons that, given the wave of digitalisation and the tax-cut programme, there are still hordes of firms with mispriced potential in America. Not everyone will agree, but Milway has a good long-term record. Otherwise Japan is one of the lower-risk markets in the world, Andrew Van Sickle likes Vietnam, and David Stevenson reckons income investors should look at oil bonds. But however you invest, keep some cash on hand – as John notes, with bonds at a 35-year turning point, there is more risk in the global financial system than usual.