Investing in the Trump Era: Signals, Noise, and Strategy

Savvy investors don't react to noise-they follow signals. Learn how to navigate today's markets, from Trump's policies to tech's continued momentum.

"This is easy," said no one ever who has actually invested in stocks. One of the most challenging hurdles to overcome as a successful investor is the natural, human penchant to be reactive. Warren Buffet famously said, "be fearful when others are greedy, and greedy when others are fearful." This investment strategy of sorts, takes advantage of human emotions, recognizing that the masses have weak constitutions, and that savvy investors can take advantage of the weak by distinguishing and responding to it. Though Buffett is old, the concept even predates him. He probably learned it from his mentor Benjamin Graham, who was not the first to memorialize the concept in his writings. No, history is dotted with very clear examples of how investors' emotions led them to their financial doom.

These days, it is perhaps, more difficult than ever to avoid letting one's emotions get the better of them. We are quite literally bombarded with information 24/7. Sadly, much of that information is designed to manipulate our emotions. Imagine a day where your only source of financial news was the morning Wall Street Journal or the New York Times Business Section? No financial news networks, social media… no internet, period. Obviously, things have certainly changed on that front. If you have 20 minutes… ok, 2 minutes if you can scroll fast, you can easily find 10 opinions on any stock you are considering. And guess what, 5 will probably tell you to buy and 5 to sell, all presented in a very persuasive manner. If you only have 1 minute and you happen to only read the ones persuading you to buy, you might do just that, only to realize by the time you finished your morning coffee, that the impulse buy was a mistake. In the flick of a thumb, you cut your losses by selling… only to realize when you check the markets again on the subway platform that you should have held. Have you been there? Sure, you have.

I know that you are probably thinking that this has been quite a lengthy introduction to this morning's topic, but it is important for you to get this concept down, like right now-right now! In the Wall Street quant world, which I spend some of my time in, we are always seeking ways of filtering out noise in search of a signal. That elusive signal, should we find it, will increase one's probability of success. To be clear, it won't guarantee it, but on Wall Street increasing one's odds for success beyond 50% is a great start… and it isn't easy.

In case you missed it, there is a new tenant in the White House. One who brings great promise for a new "Golden Age." While he hasn't specified who will be the recipient of said gold, we on Wall Street have been convinced that we are first in line. President Trump has clearly stated that his strategy is focused on economic growth, and Wall Street is the place where you can convert that growth into profits. There's that, but there is also Trump's well-known interest in using the stock market as his score card. And, in fairness, many of his actions in the past were expansionary in nature. Some of his campaign promises may have been controversial, but the core ones, were unarguably expansionary in nature.

So here we are. I want to say day 2 of Trump's presidency, but it is really day 3 as he didn't waste any time bringing out the Sharpie Markers to sign a truckload of executive orders on Monday… the day he was sworn in. And he did not disappoint. I would love to come up with the exact total of leather-bound folders that passed across his blotter, but alas, I can't find no good sources at this early hour. Thankfully, we have our smartphones and computers to feed us the play-by-play throughout the day… AND NIGHT. I was already doing research in the middle of the night reading through articles on my phone with the blanket over my head to avoid drawing the wrath of my light-sleeper wife.

And this is what I want to tell you. THERE IS A LOT OF NOISE out there right now, and I expect that noise will grow even stronger in the days to come. In my best attempt to filter out that noise and get a tradable signal, I am going to share my thoughts with you, plain and simple.

Technology helped lead stocks rally to fantastic returns for stocks last year. Tech stocks, specifically those in the AI ecosystem had the greatest upside potential at the end of last year. Though their short-term momentum slowed slightly in the final months of the year, their longer, more-sustainable trend and momentum, was second to no other group. Guess what folks? That continues today. Did you notice who was sitting in the VIP section at Trump's inauguration? That's right, but he also followed through with an announcement of a public-private joint venture to invest up to $500 billion on AI infrastructure WHILE YOU SLEPT. There is some noise in all that, but there is a clear signal, as Project Stargate is already in motion building a data center in Texas. What sector do you think will benefit from all that expenditure?

The energy sector was clearly poised to get the new administration's attention. "Drill baby drill" wasn't birthed on Monday, it has been making its rounds for months. Though it sounds great on the surface, it is still poised to be a drag on the sector. Of course, there are many arguments that can be made in favor of the strategy, but unfortunately, much of that is noise. The signal here is not positive for a sector that will struggle to maintain margins with cheaper energy prices.

Ok, let's play in traffic. If you have been reading any of my recent notes or watching any of my videos, you could not have possibly misinterpreted that I believe tariffs are inflationary. They were inflationary when I first explained them with a hand-drawn diagram in a post back in 2018. That was in response to President Trump 45 Tweeting, "I love tariffs." They were inflationary when he said, "I think 'tariff' is the most beautiful word in the dictionary," last year. And yes, they are still inflationary today. Most of Wall Street thinks so, and so does the 10-year Treasury Note. The Fed thinks they are inflationary, I guarantee.

I would posit to you that President Trump is also well-aware that tariffs are inflationary, but that does not stop him from constantly holding the threat of "massive" tariffs. His well-known targets China, Mexico, and Canada stand to get the President's attention in short order. The big question remains how much of those threats are… well, just threats, and how much of those tariffs will actually come to fruition. Markets are vexed with this very question. And I have to tell you, at this point, there seems to be mostly noise and no recognizable signal. Will Trump make good on his hinting that tariffs on Mexico and Canada can start as soon as February 1^st? Quite possibly, but will those tariffs stay in force long enough to cause US inflation to spike higher? Or will they stay just long enough for the Administration to strike a new trade deal or to modify the USMACA? Well, if the President is pro-growth, I suspect that they won't. So, noise, not signal… yet.

Broadening out our view, there have been lots of executive orders signed in the past two days that are symbolic. Sure, they voice intention, which is important, but those intentions will not impact your portfolio's long-term course until they are followed up with actual policy. Don't get me wrong, we will get policy at some point, but until we do, any moves you make will be pure speculation, based on noise.

Pushing all that really loud noise aside. The economy remains strong, employment solid, and corporate earnings are shaping up nicely (though it is early days in Q4 earnings season). We have a new president who is pro-business and pro-growth. Technology is poised for growth with or without the Administration's support, though it appears that it will, indeed, get Trump's support. Tech can, has, and will likely lead stocks higher based on the signals that exist today.

The FOMC will meet next week, and it is highly unlikely that it will make any policy changes. Its message will likely remain "cautious," and the media will try its hardest to get Powell to suggest that HIKES are still on the table… yes, hikes. That will be noise. Yes, inflation has ticked up a bit, but it is important to remember that the last bit of sticky inflation CANNOT be squelched by high short-term interest rates. Additionally, it is important to note that even at 4.5%, the Fed Funds Rate is still restrictive, and that 10-year Treasury Note yields, not under the control of the Fed, are also restrictive in a sense. Yes bond-traders are doing the bidding of the inflation hawks. Will we get cuts soon? Most likely not! While the markets would be happy to get a sooner cut, they are accepting their fate of less cuts later. By later, something like late spring or early summer, and maybe (almost even odds) only 2 small cuts by the end of the year.

That leaves… wait for it… earnings. The only pure signal we can get our hands on, and guess what? We are about to get a whole bunch of them in the weeks to come. Now, given the priciness of stocks and the big cloud of noise surrounding everything, there is no guarantee that stocks will have instant, positive responses to optimistic, forecast beating announcements. However, if you are a long-term investor, you invest based on signals only-you leave your emotions at the door. Please continue to do that, though it may not be easy.

YESTERDAY'S MARKETS

Markets closed well into the green yesterday as momentum from inaugural pomp set a foundation for gains. Investors seeking positive reassurance of Trump's pro-growth initiatives got enough of what they needed to drive indexes higher as solid earnings continue adding to the rising bull sentiment.

NEXT UP

• Leading Economic Index (December) may have slipped slightly by 0.1% after ticking higher by 0.3% in November.
• Earnings season continues with announcements expected from Proctor & Gamble, Halliburton, Travelers, Abbott Labs, J&J, Ally Financial, Steal Dynamics, Alcoa, Knight-Swift Transportation, and Kinder Morgan.
• Elsewhere in the world (not Wall Street ), Davos continues giving world leaders a chance to rattle their dull sabers as most eyes remain on Washington DC for policies and policy overtures that could affect the markets.

DOWNLOAD MY DAILY CHARTBOOK HERE

Public link

Please use the above public link if you want to share this noodl on another website.