Trump bluster or fact – Morningstar keeping its powder dry

Major research and rating shouse, Morningstar is keeping its powder dry on the implications flowing from a second Trump presidency, waiting to see what was election bluster and what becomes fact.

Morningstar Australia market strategy, Lochlan Halloway has used his weekly newsletter to question whether president-elect, Donald Trump’s threats around tariffs are much more than bluster.

“We may revise our base case macroeconomic forecasts as Trump’s policy priorities become clearer. But for now, we’re not factoring Trump’s two main trade proposals, the 10% blanket tariff and a 60% tariff hike on China, into our central case,” he said.

“Trade is one of the few areas in which a president can make sweeping changes without congressional approval, but at this stage, we think both proposals look more like pre-election bluster.”

“Nonetheless, it’s a formidable starting point for negotiation with trading partners, and Trump may be able to extract concessions by brandishing this threat,” Halloway said.

He said that amidst all the noise, investors needed to remind themselves of the power of compounding and the rewards of staying invested.

“Starting with $1000 at the time of Eisenhower’s inauguration in 1953, you’d have $27,400 today if you’d owned the S&P 500 whenever a Republican was president, and otherwise stayed out of the market.

“If you’d run the same strategy while a Democrat was in the White House, you’d have $61,800. But if you’d stayed invested the whole time, ignoring politics entirely, you’d have accumulated $1,690,000 — dwarfing the wealth of the two market timers,” Halloway said.

“Over the past 36 presidential terms, from James A. Garfield in 1881 through to Joe Biden, valuations are a much better predictor of returns than the party occupying the White House.

“Morningstar finds party affiliation accounts for less than 1% of the variability in US equity market returns across presidential terms. However, the starting valuation of the market explains almost 18% of the differences in returns across presidential cycles.”