Thoughts From a Money Manager on New Trump Policy Initiatives

The election cycle is over: FINALLY! The political rhetoric we all witnessed was divisive and very disruptive. Once a Trump victory was evident, global markets sold-off taking the Dow Jones Industrial Average (DOW) down by more than 700 points at 1a.m. Eastern standard time on election night; only to rebound swiftly with the DOW now up over 400 points (2%) since election day, prompting this post containing advice from a money manager.

We now have a Republican President and Congress, setting the stage for reducing Washington D.C. gridlock and enacting pro-economic growth legislation. The support Bernie Sanders, Gary Johnson, Jill Stein, and Donald Trump received indicate the country was ready for change, and change we received.

Policy Initiatives Impacting Financial Planning

There are three initiatives I will be monitoring as part of the financial planning I do for my clients:

  • Tax Reform: Corporate tax reduction to 15%? I don’t think so; although 20-25% may be realistic. This would put the US in a globally competitive position from a tax cost perspective. In addition, there are $2 trillion of corporate cash parked outside of the U.S. because of the 35% tax levy that would be applied, if repatriated back to the US. There has been discussion of a 10-15% one-time reprieve from corporate taxation if repatriated to the U.S. If funds are brought back to the U.S., I expect a significant portion would be invested here in the U.S, providing a welcome stimulus to our economy.
  • The Affordable Care Act of 2010 (ACA):  Will it be abolished? Although ACA’s policy goals of increasing insurance coverage and cost reduction were virtuous, its design and execution fell short. I am sure this public policy initiative will get immediate legislative attention, due to rising premiums and deductibles that are affecting so many people. U.S. healthcare expenses is the single largest financial liability we face and needs to be addressed quickly. Health care expenditures have risen from 13% of our economy in 2000 to the current 18%. If these health care expenses are not controlled, how will we ever rebuild our infrastructure and educate our children? Who knows if ACA will actually be “repealed”, but the act will be amended and reformed.
  • Regulatory Reform: Regulations are hard to define economically but businesses, especially small businesses, have held back hiring and investing due to the regulatory environment. Small companies have been the life blood of our economy’s growth, and will benefit if regulation is eased. President-elect Trump and Congress have stated clearly that the regulatory environment will be eased, and many regulations outright eliminated.

The stock market is anticipating corporate earnings to rebound in the current quarter, followed by double digit economic growth in 2017. If consensus earnings growth of 13% and 10% are achieved in 2017 and 2018, respectively, the market could advance 8-12% implying a 20,500 Dow! The DOW is currently at its all-time high, indicating confidence in our economy and earnings for the next six to 12 months. Gold prices are also affirming this sentiment as they are down 11% from the high in July 2016, and down 5% since the election. While we are cautiously optimistic about the stock market and our economy, we are also keenly aware of various headwinds, including rising interest rates and inflation, and the likelihood of the very normal periodic stock market declines (corrections) which are taken into consideration with any good wealth management strategy.

November 15, 2016
Rich Lawrence, CFA
This market update includes data we believe to be accurate. However Lawrence Wealth Management (LWM) does not warrant or guarantee its accuracy. Opinions about the future are not predictions, guarantees or forecasts. Investing in stock and bond markets have risk that could lead to investors losing money.

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