Donald Trump

Trump policies seen boosting US stocks in 2017

PUBLISHED : Tuesday, 15 November, 2016, 2:10am
UPDATED : Tuesday, 15 November, 2016, 2:10am

US stocks are poised to climb more in 2017 as the policies of Republican President-elect Donald Trump are likely to boost earnings, Steven Einhorn, vice chairman of Hedge fund Omega Advisors, said on Monday.

“The outlook for the equity market for next year should be as good or a bit better than this year,” Einhorn said at the Reuters Global Investment Outlook Summit in New York.

He cited Trump’s positions on repatriation of earnings and lower taxes as brightening his market view.

“I would reiterate and repeat a total return of 6 per cent to 8 per cent growth” including dividend yields of 2 per cent, Einhorn said.

The biggest danger to his outlook, he said, is that gains would be even stronger. “The odds favour exceeding it rather than missing it.”

Einhorn said many of Trump’s plans, including cutting the corporate tax rate and allowing companies to bring earnings home more easily, would help them deliver higher profits in the years ahead, keeping stocks on their bull market path.

While the effective tax rate may not fall to Trump’s proposed 15 per cent from 27 per cent, it may come in around 20 per cent, Einhorn said. The cash that companies bring back to the United States could help fuel more stock buybacks, which also would boost the market.

Einhorn made a similarly optimistic call one year ago when he also expected the market to gain between 6 per cent and 8 per cent. The Standard & Poor’s 500 index has risen 5.7 per cent since January, even after a sharp drop early in the year, when fears of slower growth in the United States and in China weighed on sentiment.

Omega Advisors, a hedge fund founded in 1990, oversees roughly US$4 billion in assets and has long been considered one of the industry’s best stock pickers. This year it has gained roughly 4 per cent.

Even though Einhorn expects the US Federal Reserve to keep raising interest rates beginning in December, he said the benefits of Trump’s expected policies were likely to outweigh any effects that a tighter monetary policy might have on companies.

“There have been molehills that the markets made into mountains,” he said, adding that the factors that typically herald the end of a bull market are still nowhere in sight.

Healthcare companies especially stand to benefit from new policies, Einhorn said, noting that many of those stocks have suffered from fears that Democrat Hillary Clinton could win the White House and impose stricter regulations.

Einhorn said many healthcare stocks now have attractive valuations and “significant repatriation potential.” Omega made bigger bets on pharmaceutical company Shire Plc in the third quarter, raising its investment by nearly 75 per cent, a regulatory filing shows. The filing also said Omega trimmed its holdings of Allergan Plc by 19 per cent.

With a positive outlook for the stock market, Einhorn said many active money managers could now better show their mettle. He said he expected some reversal in the tide of money that has been flowing into passively managed funds that largely mirror their indexes’ moves.