Wall St Week Ahead

Kuwait Times - - BUSINESS -

NEW YORK:

The year-end stocks rally on the heels of the elec­tion of Don­ald Trump as US pres­i­dent was built on ex­pec­ta­tions of re­duced reg­u­la­tions, big tax cuts and a large fis­cal stim­u­lus. Now signs are emerg­ing from the Trump camp that harsher trade poli­cies that could jeop­ar­dize the hon­ey­moon are likely in the off­ing, and in­vestors would be well ad­vised to give those prospects more weight when gaug­ing how much fur­ther an al­ready pricey mar­ket has to run.

By nam­ing China hawk Peter Navarro as head of a newly formed White House Na­tional Trade Coun­cil, the in­com­ing ad­min­is­tra­tion is sig­nal­ing Trump’s cam­paign prom­ises to re­visit trade deals and even im­pose a tax on all im­ports are very much alive. Among the poli­cies fa­vored by Navarro and Trump’s pick for com­merce sec­re­tary, Wil­bur Ross, who has the pres­i­dent-elect’s ear on a range of eco­nomic is­sues, is a so­called bor­der ad­just­ment tax that is also in­cluded in House Speaker Paul Ryan’s “Better Way” tax-re­form blue­print. If im­ple­mented, econ­o­mists at Deutsche Bank es­ti­mate the tax could send in­fla­tion far above the Fed­eral Re­serve’s 2 per­cent tar­get and drive a 15 per­cent surge in the dol­lar. An­a­lysts cal­cu­late that, all else being equal, a 5 per­cent in­crease in the dol­lar trans­lates into about a 3 per­cent neg­a­tive earn­ings re­vi­sion for the S&P 500 and a half-point drag on gross do­mes­tic prod­uct growth. The dol­lar in­dex has al­ready gained more than 5 per­cent since the US elec­tion.

Harsher trade poli­cies may not cause a full eco­nomic slow­down, “but I’d ex­pect a lo­cal­ized re­ces­sion in man­u­fac­tur­ing and smaller gains in fac­tory em­ploy­ment as well,” said Brian Ja­cob­sen, chief port­fo­lio strate­gist at Wells Fargo Funds Man­age­ment in Menomonee Falls, Wis­con­sin. He said the bor­der tax could trig­ger re­tal­i­a­tion, pour­ing un­cer­tainty into the mar­ket. — Reuters

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