‘TRUMPONOMICS’
Wall Street embraces
Financial markets in 2017 will likely be all about “Trumponomics.” The moment Donald Trump was declared the winner of the presidential election on Nov. 8, Wall Street’s script for where financial markets were headed in the new year underwent a major rewrite. Suddenly stale 2017 market outlooks were torn up and new, more bullish, forecasts drawn up.
Indeed, the arrival of business-friendly Trump at the White House, coupled with a Republican sweep of Congress, added up to a bullish change agent that the four Wall Street pros that took part in USA TODAY’s 21st annual Investment Roundtable weren’t necessarily expecting — but which they now view as a mostly positive development for a U.S. stock market that has been in bullmarket mode for nearly eight years.
“Trump’s election is a game changer,” said roundtable panelist David Kostin, chief U.S. equity strategist at Goldman Sachs.
The big-picture strategist, who hails from the Wall Street firm where several of Trump’s cabinet picks and advisers have worked, expects the so-called Trump rally to extend into the new year.
His call is for the broad Standard & Poor’s 500 stock index, which closed Wednesday at 2,253, to climb as high as 2,400, or nearly 6.5% higher by the end of March. But he sees the market giving back some of its gains and finishing 2017 at 2,300 (or 2% higher than current levels) as the reality of what Trump can get passed through Congress “tempers” the post-election market euphoria.
Rupal Bhansali, chief investment officer of international and global equities at Ariel Investments, summed up the 180-degree political and economic shift this way: “What we are essentially witnessing,” the roundtable panelist and five-star fund manager said, “is a regime change. We had Reaganomics in the 1980s. We have Abenomics in Japan. Now we have Trumponomics.”
Trump’s platform is seen propelling the domestic economy to a faster growth rate and providing a boost to corporate earnings growth, the fuel that drives the stock market.
The general outline of Trump’s plan — namely to slash the corporate tax rate to as low as 15% from 35%, do away with regulations that U.S. businesses complain make it difficult for them to grow, and spend $1 trillion to rebuild the nation’s infrastructure
over 10 years — is viewed as a template for growth.
“I am more optimistic,” said roundtable panelist Jeff Rottinghaus, manager of the five-star T. Rowe Price Large Cap Core Fund, adding that Trump’s policy platform is “very positive” for the financial picture of America.
Gavin Baker, manager of the five-star Fidelity OTC Fund, said the financial math does add up for many stocks and sectors that could benefit from Trump’s call for lower taxes and fewer regulations.
“It’s reasonably clear that with single-party control in Washington, D.C., that we are going to get tax reform and regulatory reform,” Baker said.
Still, there are potential headwinds.
For one, Wall Street has yet to get many specifics on what kind of tax relief Trump will be able to push through for U.S. companies. Nor do investors know what regulations will be eliminated, or how much Congress will approve in terms of dollars to be spent on infrastructure.
Trump could also upset markets by starting trade wars with trading partners such as China and
Mexico, as well as slapping tariffs on incoming goods to the United States.
There’s a strong chance Trump won’t get everything he wants, nor will Wall Street.
“The market,” said Rottinghaus of T. Rowe Price, “has priced in a lot of hope. In politics, there’s kind of a rule: You never get everything you want. So to have a strong stock market in 2017, we have to get Trump’s (pro-growth) policies enacted.”
Then there’s the Federal Reserve, which on Wednesday hiked shortterm interest rates a quarter of a percentage point for the first time in 2016. The Fed’s target rate is now 0.75%.
“The Fed is an enormous driver,” Fidelity’s Baker said.
But if the nation’s central bank ends up hiking more aggressively, that could hurt the bullish vibe on Wall Street.
Still, at least one roundtable panelist is betting on the end of political gridlock under one-party Republican rule, setting the stage for a large chunk of Trump’s market-friendly policies getting passed.
“A lack of gridlock means a few things can move forward,” said Kostin of Goldman Sachs. “It’s like being in a traffic jam around Trump Tower in New York. When the barriers come down the cars can move.”