American Presidents enjoy a honeymoon period. It begins with their victory speech and ends a few weeks after their inauguration. It is hard to imagine much of a grace period for a personality as incendiary as Donald Trump, who is inaugurated today, or that investors' euphoria towards his economic policies can last.
The Trump trade has been remarkable. After a victory speech conciliatory enough not to call for Hillary Clinton's imprisonment or the immediate abrogation of any free trade deals, investors' fears gave way to optimism. There is much to like about an agenda that would cut corporation tax and roll back onerous regulation, particularly in the banking industry. But as US stock markets have risen to record highs, fears of protectionism have largely evaporated, and investors' exuberance has looked increasingly blind.
“Trumphoria” has been fuelled by the promise of what the tycoon could achieve for America's economy – namely much higher growth. Holed up in Trump Tower, it has been easy to focus on the good Trump might do when he reaches the Oval Office, and ignore the many hurdles he will face in implementing his agenda.
Even if he now convinces fiscally conservative Republicans not to block his $1 trillion infrastructure stimulus (he is likely to get much less money), the kind of public-private partnerships he has proposed for delivering it have a very patchy record. And it is far from clear that any projects which get the go-ahead will translate into long-term productivity gains for the US economy.
Not everyone has been convinced by the Trump surge. Pimco has shorted risky assets and increased its cash position; a number of hedge funds have done the same. Goldman Sachs, Citigroup and others have seen their earnings bounce as money has poured into equities, but anything could happen in the next year or two. Indices have already started to stumble; the rally will not keep going for the sake of it.
Trump is volatile. It is unlikely that we have seen the last company to face trial by Twitter. We do not yet know how deep his mercantilist instincts really run. As Trumponomics becomes a reality, we'll soon find out what substance lies beneath the bluster.