oldman Sachs has put out the 10 market themes it is forecasting for 2017 and, unsurprisingly, they are heavy on Donald Trump. With each forecast, Iā??ll lay out my view as to whether they seem rational or hold fast to the Goldman Sachs culture of being very anti-Trump.
First, they donā??t expect returns to be much higher, different than what some think Trump could bring. This is Goldman Chief Investment Strategist David Kostinā??s position. As recently as Sept. 16, Kostin put out a note that the S&P would end that year no higher than 2,100. The S&P punched out a new all-time high yesterday of 2,193 and we havenā??t even had any Santa Claus sightings yet. Not only will he eat crow this time next year, he will likely step down in lieu of someone with a more ambitious view of the domestic economy and the stock market. After all, itā??s better for business.
Second, Goldman expects growth in the United States on the back of a Trump stimulus. Gee, it seems the right hand at Goldman isnā??t talking to the left. For a bunch of guys and gals that as partners bank about $20 million each per year, you think they could put out something a bit more creative than something Joe Six Pack is already astutely aware of. But again, this is the same company that sent an internal memo to employees forbidding them of displaying public support for Trump.
Third, it thinks the risk of new trade barriers from Trump is overstated. I agree with this position. Trump called the Chinese premier and held a high level, very diplomatic and productive dialogue that will dispel some of the overhyped fear about a massive trade war gripped by all manner of tariffs when a re-working of current trade agreements is more likely in the cards.
Fourth, it believes the pullback in Emerging Markets from Trump is only temporary, and that the asset class will gain as the economy grows. This is a toss-up as some forces are inherently bearish for emerging markets, namely a ā??king dollarā? rally that has the Dollar Index (DXY) trading at a new all-time high against the other five major global currencies. The United States will be deemed the engine that pulls the global economic train out of the tunnel of global deflation, but foreign exchange currency headwinds can wreak havoc on profit margins.
Fifth, the bank says China will continue to devalue the yuan, and hedging exposure to the currency is a good idea. I agree with this stated positon. The yuan was trading at 6.35 to the dollar a year ago and today its 6.90 to the dollar. It benefits the Chinese economy greatly to export more goods to an improving U.S. economy where consumer spending accounts for two-thirds of GDP.
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