Now that it’s all over but the shouting, we need to set ideology aside and talk about what President Trump will probably mean for the financial markets and the overall economy. Aside from his campaign rhetoric, Trump has had a consistent economic philosophy for decades, namely raising tariffs, across-the-board tax cuts, the dismantling of the Dodd–Frank Wall Street Reform and Consumer Protection Act, the repeal of the ACA (“Obamacare”), and maintaining entitlement programs such as Social Security and Medicare.
Trump’s plan to run a massive budget deficit will be stimulative.
There are two ongoing weakening influences since the Great Recession. The US currently runs a trade deficit (we import more than we export). Second, the country’s private sector remains weak since the crash of 2008, so growth has been weak and private sector consumption anemic.
The government can offset these two deficit influences by pumping cash into the economy. Governmental deficit spending has been a key factor in the economic and profit growth of the last 8 years. The federal deficit contributes to corporate profits. This is especially true in a productive economy in which private credit growth is weak. According to the Tax Policy Institute, President Trump will encourage a huge increase in the deficit. Trump will be corporate-friendly, and his tax cuts will directly benefit the top 10%, those who own financial assets, corporations and the wealthy.
Trump’s trade policies have consistently been against free trade.
Despite campaign rhetoric to the contrary, the jobs we sent overseas in the last few decades are largely gone. Trump’s protectionist policies will probably see higher prices for American goods as corporations raise prices on goods they increasingly make in domestic markets. All in all, this is probably a wash for the economy, but Trump will not achieve the benefits hoped for by his voters.
Trump’s win will almost certainly delay a hike in Fed rates.
Trump’s win will create enough uncertainty in the near-term that a hike in Fed rates in the near term will be extremely unlikely.
What is the predicted bottom line for the markets and the broader economy?
Fiscal stimulus is key, and greater stimulus will mean higher profits, higher interest rates, higher growth and higher inequality. It will be good for the overall economy, but it will be REALLY good for the top 10%.
The markets will overreact to the uncertainty in the short term.
Markets don’t like uncertainty and Trump provides plenty of uncertainty. It will take time for Trump policy changes to be enacted, and more time for the markets to digest these policies, assuming they are enacted. But given enough time, we assume/hope that uncertainty will wane. So it’s moderately reasonable to assume that this business-friendly President will be more market friendly than not.