(Repeats without change)
By James Saft
Dec 13 The stock market is taking U.S.
President-elect Donald Trump's promises of benefits like tax
breaks seriously, but aren't taking his Twitter threats and
Trump's latest intervention, a Monday tweet slamming
Lockheed Martin for costs on the Pentagon's F-35 fighter
jet program wiped as much as $4 billion off of the value of the
defense contractor's stock and sent the iShares index of
aerospace and defense contractors down 1.5 percent.
"The F-35 program and cost is out of control," Trump said on
Twitter. "Billions of dollars can and will be saved on military
(and other) purchases after January 20th."
Before concluding that Lockheed and its peers will actually
be forced to pay for those savings once Trump is in the White
House observe the pattern recently.
Trump tweets or sounds off about a company or sector, such
as drug companies or Air Force One maker Boeing, hectoring about
cost or value. The relevant stocks at first take Trump seriously
and sell off. A day or two passes, sometimes not even that long.
Then stocks go back up, confirming the upward trend they've
mostly followed since the election.
Something is happening and it is not a straight discounting
of having a hard-driving deal maker as U.S. procurement
Last Wednesday Trump said in a magazine article "I'm going
to bring down drug prices. I don't like what's happened with
drug prices," repeating a theme of his campaign.
Shares of leading drug makers fell, taking the NYSE index of
pharmaceutical shares down 2.0 percent. After hitting
its post-election low at 11.15 AM New York time the day the
interview was released, the drug sector has since rallied about
4.0 percent to stand now higher than it was before the election.
Aircraft maker Boeing came in for similar exemplary
treatment last week after Trump tweeted that the Air Force One
replacement project was "out of control" and that, "We want
Boeing to make a lot of money, but not that much money."
Boeing shares played their role in this kabuki theatre,
falling sharply on the news, but rallying several percentage
points from there to now be up 10.0 percent compared to the
Monday before the election.
Whatever Trump will end up doing, and whatever impact this
will have on companies doing business with the government,
investors don't seem especially scared.
PROMISES OVER THREATS
Or, if they are concerned, this is outweighed by other
considerations, most likely Trump's plan to cut corporate tax
rates and allow for a one-off tax holiday for repatriated
overseas profits. That flow of cash will likely largely wind up
funding share buy backs, flattering earnings per share and more
than outweighing any concessions.
After all, Trump is one guy with a twitter account, and he
has the entire Republican establishment on board for the tax
cuts, but far fewer tools to use in employing sharp-elbowed
practices with suppliers.
And Lockheed Martin is not some poor guy selling pianos in
Atlantic City. ( here
So while it may introduce some volatility into stock prices
once in a while, Twitter baiting is a relatively cheap way for
Trump to give the impression he is acting as tribune on behalf
of tax payers against corporate interests. The markets may be
wrong, but they just don't buy that story.
The market has got hold of a story it does buy though:
Trump's proposed fiscal stimulus and tax cuts will help the
U.S. equity ETFs had their best ever month in November,
attracting $50 billion, according to data from State Street
"The lofty valuations and the vertical ascents in the major
stock indexes strongly suggest that the mania phase of this bull
market may be underway. It may have further to go once overseas
cash actually does get repatriated and if retail investors start
to pile into the market," Ed Yardeni of Yardini Research wrote
in a note to clients.
Behind that fund flow story, and the tax cuts and government
spending story which touched it off, is the usual story in
financial markets: people manage career risk.
Many fund managers are now badly lagging their benchmark
indices. They usually do lag, but this year, a shock election
followed by an unexpected and strong stock market rally, has
left many managers especially far behind.
The momentum created by funds playing catch-up builds on
itself, as funds buy in to try to avoid being left so far behind
that their manager gets dumped.
Fund managers are the ones who Trump has truly frightened
rather than corporate chiefs.
(At the time of publication James Saft did not own any
direct investments in securities mentioned in this article. He
may be an owner indirectly as an investor in a fund. You can
email him at email@example.com and find more columns at blogs.reuters.com/james-saft)