By Mihir Kapadia
Finance and investment: indirect benefits and value of regulatory responsibility
In the US, the largest driver of the ‘Trumponomics’ campaign is the hope that the president can push policies to stimulate growth and increase corporate profits. Anticipation of infrastructure expenditures, healthcare reforms and tax cutting legislation have helped rally stock markets to a series of all-time highs.
Trump’s key promises are yet to materialise, yet, there are increasing fears that US stocks are overvalued. Financial analysts observing the US stock market uptrend have cautioned that the markets may already be overpriced. These concerns, however, have existed since 2003, when the current equity rally began.
The US is currently trending positively on earnings, employment, wage growth, housing and GDP. These indicate no signs of an impending recession, and the Fed Reserve is likely to raise interest rates through 2017 and into 2018. And while the dollar has lost close to 10 percent in 2017, Trump is probably happy to see it fall as it will boost US exports. Indirectly, Trump has been very good for the economy.
Additionally, it’s been a dull year for gold. The net impact of significant threats such as North Korea was negligible, and safe-haven assets such as gold received little support.
Globally, the bullish stock market, rising interest rates and a sense of market security proved to be bad news for gold. Under a bullish Federal Reserve, the commodity had already priced in the factor of interest rate hikes. Only if the actual rate of increase is less than expected, gold prices may benefit and see some relief going into 2018. Investors therefore will keenly observe the Fed’s tone when they discuss interest rates for next year to understand how they would progress into 2018.
Notably, 2017 marked a decade since the financial crisis of 2008, which sent risk assets across global stock markets tumbling. These ten years have passed quickly and better than anyone could have expected at the time. The crash was a wake-up call for governments, paving the way for responses to banking practices, such as the expansion of regulation, scrutinised lending practices and tougher stress tests.
Overall, 2008 provided a learning opportunity to set things right. Our economic mechanisms today have certainly implemented checks and balances to be more cautious in their functionality. If the crash has taught us anything, it is that complacency can sometimes be catastrophic.