Equity markets enjoyed a rally following Donald Trump’s successful campaign for the presidency, benefitting from the then president-elect’s pro-growth policy proposals, but Eaton Vance co-director of global income Eric Stein notes this has recently paused.
“Equity markets have been in a bit of holding pattern recently after their post-election rally, while Treasury yields and the US dollar have fallen somewhat from post-election highs,” he said.
“Yet the big question is how markets will react after Trump takes the Oath of Office as the 45th US president, and investors start to get more details on his administration’s policies and agenda.”
Mr Stein cautioned investors not to discount the potential downside risks that may appear should Mr Trump focus on his more protectionist policies than his pro-growth reforms, but equally that they should not “underestimate the chance for a transformational positive economic environment” his proposed fiscal and regulatory reforms could create.
“Both outcomes are very possible, but I think it’s almost as important to watch tone and messaging as it is to watch the specifics of policy proposals,” he said.
“The inauguration speech is obviously an opportunity for Trump to act more presidential, and investors will be watching and listening closely. They will also focus on the communication style after the inauguration, and any details on what Trump plans to tackle first and how.”
Some of Mr Trump’s policy goals however could take longer to implement than many expect, said Pimco head of public policy Libby Cantrill.
“Many of the items that President-elect Trump and congressional Republicans are looking to tackle in 2017 – a healthcare overhaul, tax reform, infrastructure – are inherently complex and time-consuming, even with Republican majorities in both chambers of Congress,” she said.
Ms Cantrill said Mr Trump’s stance on Obamacare was one such example of this, noting that the Republicans controlling the house are split on whether to repeal and replace the legislation, or repeal and delay it.
“Healthcare policymaking is notoriously complex and time-consuming; it took Congress 14 months to pass Obamacare after holding more than 100 hearings in the Senate and 80 in the House,” she said.
Infrastructure spending, trade negotiations, and whether to cut or reform taxes were other policy decisions likely to be met with difficulty, Ms Cantrill said, noting that many of these may not be completed or implemented prior to 2018.
“The bottom line is that governing is harder than campaigning,” she cautioned.
“While we expect policymakers to focus on advancing the Trump agenda, there is a good chance that some of these agenda items slip into 2018 given the realities of Washington.”
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