Helge Petermann

Does the Trump Market Rally Have Legs?

FILE PHOTO: Trump signs an executive order at the White House in Washington
Will the stock market rally that began with Donald Trump's election continue? Source: Reuters / Kevin Lemarque

Helge Petermann, a native of Hamburg, has lived and worked for nearly three decades in New York. He is managing director of River Street Capital, a private equity boutique advisory firm in Manhattan. He spoke in Berlin on Thursday with Handelsblatt Global Edition editor-in-chief Kevin O’Brien about investor reaction to the election of U.S. President Donald Trump.

 

We’re 40 days into the presidency of Donald Trump. There’s uncertainty whether Mr. Trump will be able to get his legislative agenda through Congress. But one group that seems to have no doubt, that has already bought his package, so to speak, is Wall Street.

You’re right. The market reaction to Mr. Trump’s election has been very positive. The markets have rallied. The equity markets are at record highs. We have seen some negative reaction in the bond market because some people are concerned about potential deficit spending. From that perspective, it’s fair to say that for now, the market is buying the package.

 

 

Clearly the market mood is upbeat right now. The president has proposed to deregulate and cut taxes for businesses. This is music to the ears of investors. Do you think he’ll be able to deliver on his promises?

The Republicans have the majority in both houses. And from that perspective, it looks like he has the wind in his sails. Now there are also some people in the Republican Party who in the past have been skeptical about increased spending. They have always liked the idea of reduced taxes and reduced regulations. So in theory the president should be able to deliver, but obviously the Democrats will be opposing a lot of his proposals, so we will see how long it will take to implement what he wants to deliver.

“The market reaction to Mr. Trump’s election has been very positive. The markets have rallied. The equity markets are at record highs. ”

Helge Petermann, Managing Director, River Street Capital, a New York private equity advisory firm

And as you mentioned, one of the elements of his proposal is a $1 trillion infrastructure program. This, accompanied by tax cuts, would suggest that the markets are at the beginning of what could be a four-year boom. Is that the mood on Wall Street right now? Is the party just starting? And are there any party poopers out there looking to kill the fun?

 It’s a very good question. The fact is, the markets very often move on momentum. As long as there’s positive momentum and there’s optimism, the markets can sustain rallies for quite a while. If you look at the fundamental side of the picture, the S&P is trading at about 17 times forward earnings, which is a little above the 25-year average of 15 to 16 times earnings. So it’s a little above the average but doesn’t seem to be in bubble territory at all yet. It remains to be seen how things will play out. There are always the risks of some short-term shocks that might upset the market. These can be political in nature or some global incident. But fundamentally, as I said, when the market has momentum, and the market focuses on the positive, that can go on for a while. Then of course there’s the chance that things will start clicking on the infrastructure spending.

 

You were born in Hamburg but have spent almost three decades in New York. As somebody who grew up in Germany, how would you describe the state of the German-U.S. bilateral relationship right now?

The relationship has always gone through ebbs and flows. There have been times like during the Reagan years when there was a lot of tension because people in Germany were worried about missiles being stationed here. In Germany, the times were very good during the Obama administration. And I think it’s one of these times where there will probably be a little bit of rethinking and adjustment on both sides, and we see that in Germany and in the U.S. But people will see that we fundamentally have very common interests in terms of free trade and a democratic environment.

 

Since you grew up in Europe and have spent nearly three decades in New York City, there’s a lot of question about the future of the European Union and, as always, the future of the European single currency. What is the view from New York on the future of the European Union and the stability of the euro?

I think in the U.S. there are a lot of people who are bearish on both the E.U. and also on the euro. I think it will obviously be very interesting to watch what happens in the various elections that come up in France and in Germany. I think in the U.S. there is a more pessimistic view of what is in store for Europe than certainly here in Germany. We’ll see how all this plays out, but in the end, it’s up to the Europeans to work out their respective problems. It’s not the Americans. They’re just onlookers.

 

Kevin O’Brien is editor in chief of Handelsblatt Global. To reach him: obrien@handelsblatt.com

 

 

 

 

 

 

 

 

 

 

 

 

 

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