We'll Say It Again: Leave Your Politics Out of Your Portfolio - trump s head

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week. Despite mainstream media handwringing about the lack of detail released by Trump's economic team yesterday on the administration's tax reform plans, the Nasdaq and S&P 500 hit all-time highs yesterday.

Since Election Day, broad U.S. stock indices are up between 12% and 19%. Lesson: Don't let your politics dictate your portfolio positioning.

And yet if you listened to the mainstream media's Trump Tax plan coverage yesterday it would seem that the sky was falling:

"President Trump on Wednesday proposed sharp reductions in individual and business income tax rates and a radical reordering of the tax code that would significantly benefit the wealthy, but he offered no explanation of how the plan would be financed as he rushed to show progress before the 100-day mark of his presidency." -New York Times

 

It was ironic to watch the media's bearish headlines come rolling in just as stocks hit all-time highs.

We'll Say It Again: Leave Your Politics Out of Your Portfolio - trump tax reform

Reality Check for Trump Bears

"The Russell 2000 ramped the Trump Bears a new one yesterday, closing at an all-time high of 1419 with the underlying Russell Growth (IWO) component leading the way," writes Hedgeye CEO Keith McCullough in today's Early Look. What does that mean?

  1. If you shorted the Russell at the higher-low it saw (1354) Easter weekend, you’ve already lost 5% of your money.
  2. If you shorted the Russell last week, you were part of the losing crowd that had the largest net SHORT position in 2.5 years right before this move.

As we wrote recently, what an epic short squeeze it was.

We'll Say It Again: Leave Your Politics Out of Your Portfolio - 04.27.17 EL Chart

Instead of being partisan, investors should measure and map the U.S. economic cycle. Here's what pushed the market higher (i.e. earnings season):

  1. 202 of the S&P 500’s names have reported their respective quarters
  2. Aggregate year-over-year SALES growth remains solid at +4.4% year-over-year
  3. Aggregate year-over-year EPS growth remains excellent at +12.8% year-over-year

In other words, the U.S. economy is the most consequential driving force behind financial market moves, not politics. So tune out the political noise. The U.S. economy is accelerating, whether tax reform passes or not. 

Trump Tax Reform... What's Next?

Ok, so we've properly dealt with the investing implications related to tax reform. That said we're all U.S. taxpayers. So here's the latest non-partisan tax reform analysis from Hedgeye Potomac Chief Political Strategist JT Taylor who wrote this morning:

 

"We hosted a flash call yesterday with David Hoppe, the former chief of staff to Speaker of the House Paul Ryan, where he took us through the president’s tax plan as revealed by NEC Chief Gary Cohn and Treasury Secretary Steve Mnuchin. Hoppe talked about how the plan will not be able to move through FY 18 reconciliation without healthcare first getting passed as it makes balancing the budget for tax reform easier.

 

The real difference between Trump’s principles and Speaker Paul Ryan’s Better Way plan is the impact on the deficit - and the price tag on the Trump plan won’t fly in the House.  Look for a tug-of-war in the coming weeks over Ryan and Ways and Means Chairman Kevin Brady’s border adjustment tax as the means to “pay-for” tax reform. The Trump plan excluded the tax on imports, but we’re hearing Ryan will not back down even in the face of White House omission - and opposition. It’s the fierce lobbying effort ahead that they’ll have to worry about."

It's probably wise not to get your hopes up about tax reform, at least not anytime soon.

We'll Say It Again: Leave Your Politics Out of Your Portfolio - 04.26.2017 tax reform cartoon

Bottom Line 

Set aside your politics and analyze the data. With the U.S. economy accelerating once again, ask yourself: Does it matter that there's a Republican in the White House? Can the stock market continue to head higher simply because American growth has turned a corner?

For good measure, we'll leave you with one last #GrowthAccelerating data point reported earlier today...