What Effects Will the Trump Administration Have On Investing?
As seen on the WJAR NBC 10 Smart Advice Series
What effect will the Trump administration have on investing? Here’s what we think so far.
In terms of financial markets, the President appears to be focused on several key policy positions:
- Increased government spending on America’s infrastructure
- Income tax reform, with positive implications for corporate earnings
- Re-examination of US international trade agreements
Increased government spending would need to be funded by more US government borrowing, assuming Congressional approval. If so, this may lead to higher interest rates, as increased economic activity increases the risk of inflation. After the election results were announced, longer-term interest rates jumped sharply, and the Federal Reserve also raised short-term interest rates in December 2016. More rate increases may follow in 2017. Rising rates mean opportunities to earn higher yields for new fixed income purchases, but they also reduce the value of bonds and bond funds for existing investors.
Tax reform, if implemented, would help US corporate profitability and therefore improve corporate earnings. We think eventual implementation is likely, given a sympathetic Republican Congress. That said, any such change would take time to translate into increased corporate spending, investment and earnings. We are unlikely to see any meaningful impact until very late in 2017 or more likely in 2018.
International trade agreements like NAFTA and the Trans-Pacific Partnership appear to be at risk in the early stages of the Trump presidency, with a strong bias towards protectionism and the possible imposition of trade barriers. Global trade conflicts are not friendly for economic growth, and US businesses and consumers benefit significantly from existing trade agreements that promote cross-border sales.
After the new administration’s intentions become clearer and details on policy proposals emerge, we expect investors will refocus on earnings, and US stocks will continue to be an attractive investment alternative for investors who can withstand normal stock market volatility. History has shown that the timing of major world events and conditions is much more impactful on financial market returns than the outcome of Presidential elections alone.
Please contact your Washington Trust Wealth Management relationship manager to learn more about positioning your investments for changes in the economic and political landscape.