Shock waves continue to reverberate in Washington D.C., where Donald Trump’s presidency is likely to have a major impact on financial markets.
We share the market’s so-far bullish reaction to Trump’s victory—It’s quite positive for economic growth—but we also have a few major concerns.
Here’s a look at what a Trump presidency could hold in store for investors.
We see a number of pro-growth potential developments. For example:
- Tax reform is believed to be highly likely, as Republicans have the votes in both the House and the Senate.
- Some new spending, especially for infrastructure projects, is expected—which could act as an additional boost for jobs and the economy.
- Government regulations that some investors view as oppressive may be removed or revamped.
- Market sectors that could benefit from a Trump administration’s policies include fossil fuel stocks, drug companies, the defense industry, financial services firms and big telecom.
That said, we are concerned about two potential wild cards that could dampen the economy and investor enthusiasm:
- A trade war with China if the Trump administration raises tariffs on imports to the U.S. for products such as steel and aluminum.
- The possibility that Trump may align with conservatives who want to sharply curb the Federal Reserve’s power, which might not be well received by the markets.
We hope that Trump appreciates such concerns and treads lightly in these areas. One of the big question marks in Washington is who he will listen to on issues like this: Wall Street insiders, or arch-conservatives in the Republican Party who want him to maintain populist positions.
Ultimately, we believe Trump to be a pragmatist, as his nomination of RNC Chairman Reince Priebus as Chief of Staff demonstrated. Priebus knows how to get things done and is a close ally of Paul Ryan, who will send Trump a wide range of legislation on tax reform, Obamacare re-structuring and other issues. In addition, Vice-President-elect Mike Pence will retain his clout during the messy transition process.
There were many lessons from this election that won’t soon be forgotten. Perhaps the biggest: Do not bet against Donald Trump. His supporters are fanatically loyal, and he now has virtually unchecked power. Democrats may try to filibuster, but most of his legislation is expected to pass.
The lesson for Hillary Clinton is that she failed to appeal to workers in a year in which the stars were not in alignment for her: Voters didn’t like establishment candidates, they don’t like globalization, and they hate Wall Street. Clinton seemingly embraced all three of these unpopular characteristics, and she paid the price.