by Peter Wechsler
President & Co-Founder, Franklin Retirement Solutions
[email protected]
We are just a few days into the new administration, so it’s too soon to see the early stock and bond market movements. In addition, many of Trump’s campaign promises are yet to be realized, and we don’t know what was real, bluster, or a negotiating tool. What we do know is that decisions made by Trump and Congress could have sharp effects on the markets, both positive and negative.
Trump comes into office with a stock market at record highs, employment at record highs, and unemployment near record lows for a peace-time economy. On the negative side, inflation is still higher than the Fed’s target of 2% and interest rates are still higher than borrowers would like. In addition, we are running record federal deficits with no plans to rein in spending or raise taxes. In fact, the opposite keeps happening.
Which of Trump’s campaign promises could cause the stock market to correct or even enter another bear market?
Tariffs: Trump has promised so many different tariffs that we have no idea which ones will materialize. What most economists are saying is that wide-spread high tariffs will force business to either raise prices, causing inflation, or to stomach the tariffs and see their profits decline along with their stock price. Trump says that the word “tariff” is the most beautiful word in the English language. We’ll see.
Large Scale Immigration Deportations: with an aging population and a declining birth rate, we don’t have enough workers. If millions are deported, who will do their jobs since often these are the jobs American’s don’t want? To fill positions, corporate America will need to seriously raise wages to get people to take these jobs. That will cause inflation, causing the Fed to raise interest rates, causing a recession and a stock market retreat.
Cutting Taxes: besides wanting to lock in the 2017 tax cuts and lower corporate taxes even more (while spending is increasing), Trump also campaigned on cutting taxes on Social Security, overtime, and tips. Should some or all of this happen, less revenues will come into the treasury and with more money to spend, consumer and business spending could ignite more inflation, causing the Fed to again raise interest rates.
Again, nobody knows what lies ahead, but know our advisors are staying on top of all this and we’ll tweak your portfolios should the market change direction. Fasten your seatbelts.
Enjoy the weekend and go Eagles!!!
Peter