Stock markets are usually believed to be ‘predicting’ the likely future strength of the economy. As such, the recent movements have basically assumed that the Trump Presidency will be ‘good’ for the US, and probably the global growth. This view presumes that he will proceed with corporate and personal tax cuts, and the significant ramp up in spending on infrastructure and defence, while discounting the likely effects of his promised protectionist measures, especially against the Chinese.

This week the IMF released its latest World Economic Outlook in which it increased its forecast growth for the US economy, to 2.3 percent in 2017, and 2.5 percent in 2018, higher than previous forecasts, but really not that strong. However, the IMF also kept its forecast growth for the world economy the same, at 3.4 percent in 2017, and 3.6 percent in 2018, up from 3.1 percent in 2016, which was the weakest since the 2008/2009 GFC.

But, while marginally more confident about US growth prospects, the IMF also identified the risks in the Trump economic strategy, at least what we know about it from his campaign commitments. It was instructive that Trump didn’t address his economic strategy in his recent press conference.

There are two major risks in the Trump strategy. First, if Trump rapidly expands budget spending, and cuts taxes, the resulting economic stimulus could collide with limited industrial capacity, causing inflation, encouraging the Federal Reserve to increase interest rates even faster than presently expected, with a stronger dollar, and a widening current account deficit.

It should also be noted that the US budget deficit is already about 3 percent of GDP, and public debt is some 106 percent of GDP. Trump can always print more money, and that should boost growth, but for how long? And what could be the ultimate consequences? A global recession?

The second risk is Trump’s threat to impose tariffs on Chinese, Mexican and other imports, and to withdraw from, or renegotiate, several trade deals. How will the Chinese respond? Will it trigger a trade war? Will this protectionist sentiment spread to Europe? Japan? Korea? Many others?

Beyond his direct economic strategy, Trump has foreshadowed many significant foreign policy and defence initiatives, including in respect of Russia, NATO, China, the Asian region, and the Middle East, all of which could also have significant global economic consequences.

Not only is it not easy to put some substance around these ‘proposals’, but many also believe that Trump will shoot from the hip, creating a very uncertain global economic and geo-political environment.

It is also unnerving that Trump seems to believe that in running government, he can rely heavily on Twitter, making 140 character statements on complex sensitive issues, and also that he can run government much as he ran his businesses, and/or his Celebrity Apprentice reality TV show.

I am sure Congress will have more and more to say about this, and to respond accordingly as time goes on. Increasing confrontation between Trump and Congress will undoubtedly be another major source of uncertainty defining the Trump Presidency.

Against all this, it is hard to understand the early stock market ‘effervescence’. It will not be sustained in the medium term, and the road could be very rough and volatile between now and then.