Investors are losing faith in Trump
Much like the jump in consumer and business confidence, there has been a surge in the number of fund managers expecting an uptick in global economic growth, inflation, and corporate profits following the election of Donald Trump, according to the Bank of America Merrill Lynch's Global Fund Manager Survey.
However, the new survey, out Tuesday, showed that this enthusiasm is beginning to fade.
The number of fund managers expecting faster global growth over the next 12 months is "rolling over" according to the note on the survey from Michael Hartnett, BAML's chief investment strategist. In addition, expectations for an increase in global inflation are also sliding from recent highs according to the note.
In terms of corporate profits, 50% of investors said they expected global corporate profits to improve over the next 12 months, down from 57% in March's survey.
Bank of America Merrill Lynch
This shift in part seems to be coming from a lack of faith in Trump's ability to pass his promised tax reform. Trump's pledge to slash the corporate tax rate would, according to analysts, lead to an increase in profits for companies and in turn justify higher equity valuation.
Since the defeat of the GOP healthcare bill and the recent wobbles on tax reform by administration officials, it appears that investors are becoming more skeptical about policy follow-through.
"Only 5% of investors expect tax reform to be passed before the summer recess," Hartnett wrote. "And almost as many now expect no US tax reform before 2018 as expect it by year-end."
Bank of America Merrill Lynch
In identifying the "biggest tail risk" to economic growth, 21% of fund managers identified a "delay in US tax reform," making it the second-most cited risk and a large jump from the roughly 10% of investors that said the same last month.
This by no means that investors have totally turned around on the possibility of a "Trump boom," but it appears the massive jump in expectations is starting to fall back to Earth.