Since November 8 election we have repeatedly mentioned Trump’s key economic promises (higher fiscal spending, tax reform and deregulation on some private sectors). However, we haven’t been talking about the way such measures affect the economy and our portfolio. Don’t get nervous… Here is a list of the most relevant promises and their possible consequences.
Promise: To increase fiscal spending, focusing on infrastructure (to rebuild America) and defense/security (to battle and defeat terrorism).
Effects: This measure translates into economic growth (stronger Gross Domestic Product), which clearly is received positively in stock markets. If the country continues to expand its economy and inflation, the Federal Reserve would need to raise interest rates to keep up with the rhythm, a decision that would take the greenback up against other currencies. If you are looking at this factor from a commodity standpoint, then you should probably prepare for a bearish scenario considering that oil and metals are both priced in US dollars and a stronger currency would make them less competitive for investors abroad.
Promise to individuals: To simplify individual income tax scale, increase deductions, repeal the death tax, and promote special deductions for families with children under age 13.
Promise to businesses: To reduce business tax rate from 35 percent to 15 percent, while also eliminating the corporate alternative minimum tax.
Effects: In this scenario, individuals and companies are expected to have more money for themselves. Individuals would likely use the money for consumption, which could lead to stronger economic growth and inflation. As for companies, they could invest more on jobs creation, expansion, and more. A tax reduction is good for stock markets and the US dollar, although again, it might hit you back if you are working with gold or other commodities.
Promise: To eliminate unnecessary regulation that could lead to less jobs and does not improve public safety. Particularly, Trump wants to eliminate the Waters of The US Rule and the so-called Clean Power Plan promoted by the administration of Barack Obama.
Effects: Less regulation for industries translates into growth and better corporate earnings, prompting up stock markets and improving business sentiment across the country. Banking and industrial sectors are expected to benefit the most out of these deregulation process. Stronger dollar and pressure on commodities are part of the possible outcome.