Written by: Frank Fazio
Today is an historic day, as Donald Trump will be inaugurated as the 45th President of the United States. Since winning in surprising fashion this past November, Mr. Trump has released policies that may have positive implications for both the U.S. economy and equity markets. This propelled equity markets to all-time highs, with the Dow Jones Industrial Average and S&P 500 indices returning between 5-7% to the end of the year, while bond markets declined due to a spike in interest rates (see Chart 1).
However, equity markets have been more measured as we head towards the inauguration (see Chart 2). This includes interest rates and the U.S. Dollar, which have declined in January after a strong rally post-election. This has helped International Equities outperform the U.S. market over the past few weeks.
It remains to be seen how many of Mr. Trump’s policies can be implemented through his first 100 days. Below are several we will be monitoring due to their near-term impact on economic and market conditions:
-Reduction of both Individual and Corporate Tax Rates
-Infrastructure spending bill
-De-regulation of financial industry
-Repeal of Affordable Healthcare Act (Obamacare)
-Increase of tariffs on goods made outside of U.S. (potentially negative impact on trade)
Implementing policies to increase fiscal spending, cutting taxes and de-regulation may push equity markets past their recent all-time highs, while helping the economy break through the low growth environment we have been in since the end of the Great Recession. However, it may come at the cost of inflation and higher interest rates over the long term. This level of uncertainty as Trump takes office is expected to weigh on market returns over the next 3-4 months.
As we have discussed in previous blogs, the overall economic climate has been improving even before the Presidential election, which may continue to be a tailwind for U.S. equities. We will continue to monitor current environment to see if some of his policies come to fruition