Donald Trump’s presidential victory cost Paddy Power Betfair (PPB) £5m in lost bets. We doubt it will be the only left nursing losses under his administration. The dust is now settling from Trump’s inauguration and the outlook for investors isn’t necessarily all good news.

The initial reaction to Trump’s election win in November 2016 was a big market bounce as investors focused on his supposed business acumen and his pledge to allocate $500bn to infrastructure spending. This confounded warnings of a stock market collapse if Trump was elected.

If those forecasts were too pessimistic, it’s now starting to look like investors swung too far over to optimism.

Two months after the election on 8 November, the FTSE 100 had advanced by 5.4% and the S&P 500 was up 6.4%, having marked new records several times in the interim.

A week or so later, it seems clear the market’s love affair with ‘The Donald’ is starting to wane after an unusually divisive inauguration speech (20 Jan) which disappointed expectations that the office of the presidency would bring the controversial candidate into line.

So far there has been no mention of the kind of fiscal stimulus Trump hinted at on the campaign trail and his inauguration has been met with furious protest across several major US cities.

Winning trades

We said on many occasions ahead of the vote in November that Trump had a viable chance of being president, despite the polls suggesting otherwise.

The 27 October 2016 edition of Shares included our portfolio of stocks to buy if you believed Trump would win.

We reappraised the portfolio following the election result and suggested taking profit on the healthcare stocks which had rallied following news that Hillary Clinton wouldn’t be president and clamp down on drug pricing.

The table (see Trump Trades) shows the remaining picks included some pretty shrewd calls and overall we achieved a return more than twice that of the overall market (as represented by the FTSE All-Share).

It is now prudent to take some profit on our selection of oil service stocks. These are beginning to look over-extended and vulnerable to even a modest disappointment.

Better backdrop for gold?

Gold has drifted as the market moved firmly into ‘risk-on’ mode but could have renewed appeal against a more uncertain backdrop.

All commodities could get a boost if eroding confidence in Trump is reflected in the US dollar thanks to the traditional inverse relationship between the two.

Any benefit for UK-listed miners and oil and gas producers could be dampened, as dollar-denominated earnings would be worth less in sterling.

America-first policy

Probably the strongest message to emerge from Trump’s first major speech as president was an ‘America-first policy’. This could be a major risk for the global economy if it leads to increased protectionism but is a likely boon to domestic US stocks, at least in the short-term.

Domestic stocks are well represented by small caps and there are several ways to play this section of the US market.

A handful of UK exchange-traded funds (ETFs) offer direct exposure to the Russell 2000 index, the cheapest of which is SPDR Russell 2000 US Small Cap (R2US) with a total expense ratio of 0.3%.

Mutual funds with a US small cap focus include Aberdeen Global – North American Smaller Companies (LU0566484027) and CF Miton US Opportunities (GB00B8278F56).

Life under Trump - what the experts say

Wiltold Bahrke – senior strategist, Nordea Asset Management:

‘Equities are discounting a significant growth pick up without meaningful monetary tightening spoiling the show. Confidence among small and medium-sized companies in the US is at the highest level since 2004 and US company earnings estimates for this year were not revised down at the end of last year like they normally are.

‘However, scepticism is warranted, especially as some markets seem to be priced to perfection when it comes to the overall economic outcome for 2017.’

David Page – senior economist at AXA Investment Managers:

‘As Trump discussed the “hour of action”, the prospects for policy in the first 100 days continue to include the risks that we have flagged over the possibility of tariffs or other trade protectionism, with the coincident risk of retaliatory measures elsewhere around the globe.’

Ben Gutteridge – head of fund research, Brewin Dolphin:

‘There is a considerable weight of expectation on the Trump Administration and it now must deliver on tax reform; cutting rates for both corporations and households… on balance, we remain very optimistic.’

Tom Elliott – international investment strategist, DeVere Group:

‘The clock starts ticking on President Trump’s first 100 days. If in this period we hear conciliatory words from Trump on his more contentious policy ideas, and evidence that his advisors and Congress can control the impulsive side of the man, Trump may confound his critics and have a successful presidency. Markets will be relieved and the Trump rally on Wall Street will resume.’

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