Trump Rally's Prospects 'Not Looking Too Hot,' Bond Manager Says

  • Memani says markets need fiscal expansion to sustain rally
  • OppenheimerFunds CIO says emerging market bets are good value

Krishna Memani, chief investment officer at OppenheimerFunds, explains why the U.S. government must deliver on fiscal stimulus expectations in order to jump start economic growth. He speaks on 'Bloomberg Markets.' (Source: Bloomberg)

The stock market rally fueled by Donald Trump’s election is poised to stall as prospects recede for quick implementation of pro-growth policies, according to Krishna Memani, who oversees more than $220 billion at OppenheimerFunds Inc.

The S&P 500 Index has surged 10 percent since Trump’s surprise victory in November, which Memani attributed to the expectation of higher corporate earnings and growth. For the market to rise another 10 percent to 20 percent, policy actions on taxes, regulation and trade need to be the driver, he said Thursday in an interview on Bloomberg Television.

“Unfortunately that is not looking too hot at the moment,” said Memani, who is chief investment officer and head of fixed income at the asset manager. “When we came in to the inauguration, everything was looking good, but not anymore.”

Trump has sent mixed signals about how he might eventually reform the tax code or overhaul the Affordable Care Act. While the Republican campaigned on a plan for massive investments in infrastructure, the new budget head, Mick Mulvaney, advocates limited government spending.

“Unless we have a significant fiscal expansion -- that is deficits rise meaningfully -- the likelihood business investment will go up meaningfully, I think, is pretty small,” Memani said. “And with Mulvaney and people like that being in the driver’s seat with respect to the tax proposals and the budget, that is looking less likely.”

The S&P 500 was little changed as of 12:34 p.m. in New York after slipping Wednesday. Before that, the index had advanced nine of 10 days.

‘Treading Water’

After the Trump administration discloses specifics about its tax proposals, stock markets will likely “start treading water and take small dips, rather than accelerate to the next level,” Memani said.

The money manager advocates betting on credit, including on leveraged loans. And he said that targeted equity bets in emerging markets could make sense, such as internet companies in China, rather than that country’s banks.

“Emerging markets equities, in my mind, are pretty good value,” Memani said. “It’s not really dependent on what Trump does and, as long as he doesn’t do things on the global trade front, I think the emerging market growth outlook is quite decent. And valuations are much better than they are in the U.S. and other places.”

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