Does the “Donald Trump Rally” in the equity markets have enough strength to continue through 2017? Only time will tell, but the keys to the strength of the rally will be what promises Donald Trump the President can put into effect.
The promises to 1) lower the corporate tax rate to 15%, 2) a one-time lower tax rate bringing foreign money held by U.S. corporations home, 3) greatly reduce regulation on U.S. business, 4) revamp Obama Care reducing the financial strain it places on many small business, 5) increase in infrastructure spending, are all viewed favorably by the markets.
If most or all of these promises come to fruition within the first year or two, then the equity markets should remain quite strong. But if these promises are not passed or greatly watered down and if some of the promises with negative implications come into effect then market sell off is very possible.
Some of the negative promises to watch for are 1) U.S. border tariffs on imports, 2) classifying China as a currency manipulator, 3) reducing or closing the U.S. to most immigration, 4) tearing up trade agreements currently in place (i.e NAFTA) and one approved but not implemented (i.e. TTP).
It is my opinion President Trump and Congress will focus mostly on the positive promises first. Therefore, I see stock markets having quite a positive focus for the next six to nine months, but on rallies I would take some profit to keep your portfolio risk quite moderate. At some point we will encounter a market sell off but I feel its further down the road than many investors think. Donald Trump as U.S. President will probably increase overall market volatility, so we need to be invested but with a conservative bias.
As always if you have any questions please feel free to contact me.
- NAFTA- North American Free Trade Agreement
- TPP- Trans-Pacific Partnership