The first month of 2017 is now in the books along with the first couple of weeks of the Trump presidency, which was nothing if not eventful. More than a dozen executive orders, an immigration ban, a Supreme Court nomination, testy phone calls to foreign leaders, an attempt to dismantle Dodd-Frank—all in a week’s work.

Year to date as of 1/31/2017    

US (S&P 500, Symbol: SPY)                               Up 1.79%

The Dow Jones (Symbol: DIA)                           UP 0.43%

The NASDAQ Composite                                  Up 4.3%

Europe (Euro Stoxx 50, Symbol: FEZ)               Up 1.67%

Emerging Markets (Symbol: EEM)                   Up 6.66%

Bonds (Total Bond Index, Symbol: BND)          Up 0.0.19%

Gold (Symbol: GLD)                                          Up 5.41 %

(source: cnbc.com)

Leading up to the inauguration, investors were in a wait and see mood, after rocketing 9% from just before the election to mid-December, the Standard & Poor’s 500 index hasn’t moved much. Why? Investors want to see electoral promises materialize. The rally was born of the pro-business proposals from the Republicans, who now control both the executive and legislative branches of the federal government. Talk of tax reductions, eased regulation, and greater infrastructure spending is no longer enough. Hope can fuel a rally for only so long. And sure enough, as the new administration took office and President Trump started delivering on some of his campaign promises, investors started reacting accordingly, and we saw volatility increasing.

While the Trump team can claim some credit for the Dow hitting 20,000, a few of the new administration’s policies pose a serious threat to the economy and stock market. The most evident one recently was the trade spat with Mexico, with the White House at one point floating the idea of a 20% border tax on Mexican goods entering the U.S. If such policies were to trigger a trade war, the world economy would suffer. Other worrisome policies include, a corporate tax overhaul that cuts interest deductibility could make leverage less manageable. Border-adjusted taxes that reward exporters and pinch importers could backfire, as well, raising prices and damping growth. And a rising dollar could cut into U.S. earnings growth and create stress in emerging markets.

There is plenty of opportunity for positive economic-policy change from the Trump administration, and we’re warily optimistic. But execution risks abound.