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.
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.
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.
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.
President Trump’s proposal to spend heavily on infrastructure could have significant implications on the materials and industrials sectors.
Broadcom (AVGO) stock fell ~8.5% after markets closed yesterday following the semiconductor giant's fiscal 2019 second-quarter earnings release. It missed analysts' revenue estimate and cut its fiscal 2019 revenue guidance by $2 billion to $22.5 billion due to sluggishness in its semiconductor solutions business.
The SPDR Gold Shares ETF (GLD), which tracks physical gold prices, has underperformed the broader markets year-to-date, rising just 4.4% compared to the S&P 500’s (SPY) gain of 15.9% as of June 14. The sentiment for gold, however, has been turning around.
Safe havens such as Treasuries and gold were back in favor on June 14 as stocks fell due to rising tensions in the Middle East, concerns over growth, and the looming threat of the US-China trade war. The tech-heavy Nasdaq Composite Index fell 0.67% in the first hour of trading.
Lululemon (LULU) stock rose 2.1% on June 13 in reaction to better-than-expected first-quarter results and an upgraded outlook for fiscal 2019 overall. The company's first-quarter adjusted EPS grew 34.5% to $0.74 on revenue growth of 20.4% to $782.32 million. Analysts had expected EPS of $0.70 and revenue of $755.31 million. Here's why the outlook got an upgrade.
As of 4:40 AM Eastern Time today, US crude oil active futures were at $51.83, ~4% below their closing level in the previous week. If US crude oil prices stay at those levels today, they'll mark their third week of decline in five weeks.
Amazon is discontinuing its Amazon Restaurants service, which has been delivering food for restaurants in parts of the United States. Amazon Restaurants launched in the United States in 2015 and entered the British market the following year. However, it met strong opposition in the British market.