U.S. equities and stock exchange traded funds were little changed Tuesday as traders remained cautious over political risks, notably President Donald Trump’s ability to deliver on policy promises.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were down down 0.1% Tuesday.
U.S. markets remained relatively flat even after Trump hinted at a U.S. infrastructure bill that could top $1 trillion and said his administration was working on a major “haircut” to the Dodd-Frank banking regulation, reviving talks around his campaign promises, reports Yashaswini Swamynathan for Reuters.
Further fueling the cautious sentiment gripping the markets, Trump is scheduled to meet Chinese President Xi Jinping, which the U.S. president has already anticipated “will be a very difficult one,” according to Trump’s recent tweet. Trump is expected to leverage the trade talks to secure China’s aid in handling North Korea at the upcoming Thursday through Friday meeting.
“We will probably have a period of consolidation here as the realism sets in … it’s likely that we are going to see some choppy sideways trading,” Jason Pride, director of investment strategy at Glenmede, told Reuters. “Investors are having to go through a period of realism here, which is a transition away from some of the policy-related hype that surrounded the administration to the reality that much of what was proposed was either not going to make it or be a watered down version or be greatly delayed.”
U.S. equities have rallied since the elections on Trump’s pro-growth policy proposals, including tax cuts, deregulation and fiscal spending, but the momentum took a hit after the Republican-controlled Congress nixed a healthcare bill to replace the Affordable Care Act, or Obamacare, fueling concerns over Trump’s ability to pass through his pro-business agenda.
Consequently, while many expect the U.S. economy to continue chugging along, traders are concerned that the recent Trump-induced rally has pushed valuations past fundamentals.
“We look at the economic cycle in the United States as being stable, but with a bit of softness in 2017,” Stephen Wood, chief market strategist at Russell Investments, told the Wall Street Journal. “We keep coming back to the assessment that U.S. markets are expensive and that valuations ultimately matter.”
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