The last time Republicans controlled more power in government was 1928. Trump’s administration stands out for having the lowest average government experience since Reagan but by far the most business experience of any administration in recent history. Trump, himself, stands out as a deal-maker. In short, this is a precedent-setting moment where Trump has the infrastructure beneath him to potentially accomplish significant policy changes.
Trump’s pro-growth policies represent a shift from monetary policy and increased regulation to fiscal policy and de-regulation. Policies includes tax reform, healthcare reform, trade, and energy infrastructure. His objective is to generate more jobs for Americans and spur economic growth.
The stage is set for reflation and the capital markets have reacted accordingly. Interest rates have spiked with the U.S. 10YR Treasury climbing 0.60% since election day. Optimism for economic growth drove U.S. equity prices to all-time highs, strengthened the dollar, and generated a spark in cyclical commodity prices.
Trump’s deal-maker character is also a major shift in how government policy is pursued…which is why we caution that uncertainty remains on when and how these policies will impact the economy and asset returns. Will Trump utilize his power to push through divisive policies? Or if Trump wants to be popular (so the GOP can maintain control and he can get re-elected in 2020), will he follow a more inclusive course? Importantly, when will the administration’s policies be passed and implemented? Tax and healthcare reform is complex and time consuming. The impact to trade policy is complex and difficult to predict. Between tweeting and spectacle press events, the next four years will be entertaining yet volatile for the financial markets…
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