TD manager grapples with the 'Trump effect'

Amid uncertainty, David Sykes favours companies with consistent earnings growth.

Michael Ryval 9 February, 2017 | 6:00PM
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The Trump effect, driven by the new U.S. president's campaign promises and subsequent pronouncements, has created winners and losers in the U.S. stock market. And as David Sykes, managing director and head of fundamental equities at Toronto-based TD Asset Management Inc., points out, it may pay off to raise exposure to some of the winners. But at the same time, it's prudent to leave some cash in reserve in the event that markets are thrown off by the politically inexperienced U.S. president stumbling on the world stage.

"If you look at equity markets before the election versus today, the S&P 500 Index is up roughly 6%. Some refer to that as the Trump effect. To me that's a relatively modest move," says Sykes. "But there has been a much more violent move at the sector level. We have had huge shifts away from the defensive sectors, such as consumer staples and telecom stocks. And there's been a huge rotation into financials and industrials. That's been the Trump effect."

President Donald Trump's pro-economic growth and pro-inflation policies are the key drivers, says Sykes. "The market has said, 'Wow, this is really good for industrial stocks, financials and technology.' In my opinion, the question is, is the Trump effect sustainable? It will depend on legislation. Election campaigns are all about the politics of the possible. Governing the U.S. is all about the politics of the impossible. We will see how the system of checks and balances work out."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Boeing Co221.10 USD1.90Rating
Goldman Sachs Group Inc391.86 USD1.66Rating
Honeywell International Inc219.70 USD1.23Rating
JPMorgan Chase & Co161.18 USD3.38Rating
Lockheed Martin Corp344.20 USD0.72Rating
Wells Fargo & Co47.80 USD1.53Rating

About Author

Michael Ryval

Michael Ryval  Michael Ryval, a regular contributor to Morningstar, is a Toronto-based freelance writer who specializes in business and investing.

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