Do you think a short-term view is a dangerous approach in this bull market?
Short-term moves can be very misleading. On the morning of the Brexit vote the UK equity market was sharply lower but subsequently rallied as the fall in the pound boosted earnings and the worst fears of the leave campaigners failed to materialise. After the election of President Trump in late 2016 there was a rotation into stocks that were seen as beneficiaries of his policies, this shift reversed in the early months of 2017 as it became clear that the changes would be slow to come through. It is often the case that the market knee-jerk reaction is wrong. In the last twelve months the FTSE 100 Total Return Index rose by 11.95% but 6% came in only 15 trading days in April/May and 5.1 % in the last 14 trading days of the year. So, if you missed just two short periods amounting to less than 10% of the trading days, the return would have been almost wiped out. Last year elections, Korean threats, Brexit and Trump's tweets may all have had short-term impacts, but it has been vital to look through the noise and ride through short-term moves. The next year will see more of the same and while we monitor news very closely, our investment decisions should be based on longer-term considerations.
Following announcements from Apple and other companies, what impact are Trump's tax changes having?
When the Trump tax plan finally passed, the question in our minds was if it would benefit shareholders or the average person. In the first month after the changes, we are certainly seeing an impact. Apple announced that it would repatriate a large part of its $230 billion cash pile to take advantage of the reduced tax rate. It will pay in the region of $38 billion in tax and will invest in creating 20,000 new jobs over the next five years. Apple employs 123,000 staff globally of which 84,000 are in the US so 20,000 looks like a significant number. However, Apple employees grew by about 7,000 last year and 6,000 the year before so 4,000 a year over the next five years may not be as tax package-related as the headlines would have it. At the margin, the growth in jobs will be in the US possibly at the expense of overseas economies. Apple will also give $2,000 in stock to employees. If all employees receive it then it will amount to $250million. The Apple share price has been moving higher this year and since year end the market capitalisation has gone up by $50billion – adding $15billion just yesterday. So, while there are benefits for the US economy and the US treasury, Wall Street rather than Main Street may still be the winner from this move.
Elsewhere the impact has been mixed with Walmart offering a one off bonus to staff and Wells Fargo raised its minimum wage though they may have done this anyway. Other banks are talking about share buy backs and enhanced shareholder returns. In some cases, actions they would have taken anyway may be dressed up as the result of the tax changes for political reasons. One off payments may boost consumer spending which may boost inflation in the short term. It is investment in growth that will make the real long-term difference to the US economy. It is early days and we will continue to monitor the impact of the tax changes in the months to come.
Jonathan Marriott - CIO LGT Vestra
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