This article analyzes how reflexivity may have created a new paradigm, referred to as the Donald Trump stock market.
With the Trump administration nearly at the front door of the White House, it is important to point out that the U.S. stock market seems priced for a perfect world — not reality. The recent presidential campaigns displayed just how divided the U.S. really is. This is also occurring in other countries, like the French election with Marine LePen. Personally, I am a bit concerned about what will happen if the Trump administration does not start off on a good note. I think the stock market has not priced in the likelihood of a major scandal or a macroeconomic crisis.
My prediction: the Trump administration’s first 100 days (or whatever time period you consider a “start”) is going to be a preview of how the rest of the presidency goes.
New Paradigm for the Stock Market
We believe so many Americans engaged so strongly with the campaign season that rates of consumption and investment are likely to become more correlated to how the U.S. public views the relative success or failure of Donald Trump. During periods of great emotion, reflexivity can begin to characterize certain parts of an economy (such as spending). We encompass this new paradigm for the stock market with one phrase: the Donald Trump stock market.
Fallible & Reflexive Processes
The theories of fallibility and reflexivity, as developed by George Soros, are usually difficult to pinpoint in the real world. But we know for a fact that there is some level of fallibility in the U.S. financial market when it comes to Donald Trump. The market took a nosedive on election night, and then it immediately recovered within hours. There are clearly different viewpoints of Donald Trump and not a single one of them is impartial or undistorted. The difficulty lies in understanding what types of actions investors will take as a result from fallibility.
For those of you unfamiliar with fallibility and reflexivity, read the following excerpt from George Soros (as seen in The Financial Times):
Donald Trump Stock Market: Main Concern
My worry is that the investment community’s viewpoint of Donald Trump may become a reflexive process. If investors believe the economy will tank under Trump, they could possibly turn it into a self-fulfilling prophecy. If investors believe the economy will prosper under Trump (better scenario, of course), they will be more likely to invest which would directly affect the ultimate success or failure of Trump’s presidency.
The value-investor part of me says the market needs to correct itself to stay at healthy levels. The trader part of me says, if the public sees Trump as successful, there is not much left to stop the formation of an asset bubble. We have made every effort to Trump-proof our Bullish List and our Bearish List.