You heard the predictions for pretty much a full year. Don’t elect Trump. It will spell certain doom for the economy, especially in the stock market.
While the close nature of the election caused futures to tumble for a few hours on Election Day, by the time trading opened on November 9th, the major components of the stock market were at record highs with near-record growth rates.
Now, real financial experts who weren’t looking to get a paycheck from mainstream media were far from surprised by this, and in fact, more than a few predicted that a Trump election would usher in a bull run. These predictions are based on a few observations, and they help us approach an important question. What does it all mean?
The Rally
Since the election, stocks across the board have spiked. The Dow, NASDAQ and S&P 500 are all at record highs and showing growth that hasn’t been matched in the past decade. In fact, in the sole month since the election, the Dow has risen 5 percent, NASDAQ is up 4.5 percent and the S&P 500 is up 3.8 percent.
Considering the massive dips seen earlier this year, the current closing rates for all three sectors are downright staggering, and all of this is just on the promise of President Trump. It’s clear that the investment surge is tied to the election results and expectations, but what does that say about the country and the future?
The Last Decade
Any look at recent history has to be clearly divided. Pre 2008 numbers and post 2008 numbers are difficult to compare, but what is easy to analyze is what was done since 2008 and how Americans have responded. Primarily, the government released a short-term stimulus package and cut interest rates as low as possible. That has enabled a painstakingly slow recovery that has left everyone from economists to blue collar workers unimpressed.
In all, the Obama Administration’s stance on globalization, trade agreements and social programs has done little for the economy to the point that even the hope of a new direction has stimulated more economic growth than his cumulative policies over the last eight years.
The Trump Plan
While you no doubt understand the gist of Trump’s plan, lower taxes and revised trade agreements, it’s worth a little scrutiny to see what has the biggest impact. The promise of tax reform enables investors to make bolder moves, and that has certainly helped, but the big story is in infrastructure.
Trump is planning to spend trillions of dollars during his presidency, and the early indicators are that everyone believes it will happen. It’s not surprising, since this was an issue Trump and Hillary moderately agreed on throughout the campaigns.
The chance of bipartisan support for massive infrastructure spending is already moving money. The S&P 500 growth spurt has been largely lead by companies that will be tied to this work.
Caterpillar Inc., for instance, is valued 14.5 percent higher than at the start of November. Across the board, industrial shares on the S&P 500 are up 9.1 percent in just under a month, and the cap is predicted to be much higher.
The Trade Off
So spending on infrastructure is good for related industries. That isn’t really surprising after all. What’s the catch? No economic approach is without a trade off, and this is no exception.
In this case, the early indicators are already matching predictions, and treasuries and bonds are losing value. This comes largely from the expectation that Trump’s policies will require additional borrowing, and at least in the first year or two, this is likely inevitable.
In this case, though, the catch isn’t actually bad news. A declined value of the USD will help Trump’s other goal of reducing trade deficits. While discussing trade agreements is better left for another day, Trump has long said that the U.S. needs to improve exports for a stronger economy. So far, the markets are already pushing towards these goals without him even taking office.
The Bottom Line
The people who actually run the U.S. economy, namely business owners and investors, believe in Trump’s plan. In fact, they were a large driving force in his election. The confidence creates a self-fulfilling prophecy that will push congress to fall in line.
Americans first voted with their ballots, and now they are voting with their wallets. The world is watching, and Trump’s presidency is off to a strong start more than a full month before he actually takes office.
Regards,
Ethan Warrick
Editor
Wealth Authority
