Market Implications of Trump’s 'America First' Agenda

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Market Implications of Trump’s 'America First' Agenda PART 1 OF 5

Proposed Policies are Causing not only Market Euphoria but also Sector Divergence


During the entire election cycle, Donald Trump touted his America First agenda. His strategy to “Make America Great Again” has some classic Republican components to it as well as some more radical approaches to shake up the status quo and reinvigorate America’s economic growth engine. Some of the party-line changes would include lower taxes (both individual and corporate) and fewer regulations. Some of President Trump’s bolder ideas include import tariffs and a large infrastructure spending program. Whether you agree or disagree with the new president’s approach, different market sectors are responding strongly to both the rhetoric and the goals of the new administration. With stock correlations sitting at multiyear lows, it is more important than ever to understand President Trump’s agenda and any resulting repercussions that could determine the direction of each market segment.

Faster growth

This goal is fairly straightforward, seemingly achieved by typical Republican tactics – cut taxes and ease regulations. Typically, the overall market responds well to anything that would be perceived as accelerating earnings and revenue growth.

To spur this growth, the new administration wants to put more dollars in consumer and corporate pockets. They then hope consumers will spend more on goods and services and corporations will spend more on capital equipment and hiring. Though the market does not have the particulars of this policy change, the expectation that the change will help all segments of the economy has been playing out in the market since election night.

Proposed Policies are Causing not only Market Euphoria but also Sector Divergence

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The markets (SPXL) (SPY) surged after Donald Trump was elected president on November 8, 2016. During the campaign, Trump proposed corporate tax cuts and spending on infrastructure, which are pro-economy moves. He promised to lower the corporate tax to 15.0% from its current hefty level of 35.0%. He also called for spending as high as $1.0 trillion on infrastructure in order to boost job creation.

Aggressive government spending and lower taxes could add to the already high debt levels. But in order to rein in debt, Trump has proposed a one-time tax on overseas profits. American companies would have to pay 10.0% on their overseas profits, which is expected to encourage companies to operate in the United States, thereby creating more US jobs.

Proposed Policies are Causing not only Market Euphoria but also Sector Divergence

New policies may affect each sector differently, which is causing sectors to move in a variety of directions, as the graph above shows. In the following parts of this series, we’ll shed some light on the impact of Trump’s policies on certain sectors.


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