Financial markets in President Trump’s first week: Is the rally for real?

The U.S. is one week into the Trump presidency, and there have already been executive actions and market reactions.

In this week’s episode of Market Week in Review, Investment Strategist Paul Eitelman was joined by Rob Cittadini, regional director, consultant relations. In their look back at Trump’s first week in office, Eitelman noted that, so far, Trump has been sticking pretty closely to the promises he laid out in his campaign. Notably, Trump took an executive action to pull the U.S. out of negotiations for the TPP (Trans-Pacific Partnership)—a trade agreement between Pacific Rim countries. The administration also made mention of a potential 20% border tax on goods entering the U.S. from Mexico. Eitelman noted, “That was important as a risk signal, because if the U.S. does move more aggressively on trade policy, that could act as a headwind on global growth and global markets.”

Eitelman observed that what we’ve seen so far from Trump are the executive actions—those that don’t require cooperation from the U.S. Congress. Those Congress-dependent moves—or the lack thereof—have the potential to impact financial markets.

Will the rally continue?

The U.S. equity market’s response to Trump’s moves? A continuation of the rally. The S&P 500® U.S. equity index set a record high this week. But that high has made Russell Investments’ strategists lean toward caution. Eitelman noted that equity valuations in the U.S. are the most expensive they’ve ever been, outside of 1929 and 2000. That high valuation may not necessarily translate into a negative outlook on a one-year horizon, but, over the next three-to-five years, that comparative expense level may work as a headwind.

Global economic health

Looking through a global lens, Eitelman noted that economic conditions have continued to improve. January results from the PMI Purchasing Managers’ Index—a key survey for the manufacturing sector—showed a global measure that is the strongest it has been since mid-2011.

Watch the video now.