“I’m the king of debt. I’m great with debt. Nobody knows debt better than me,” President-elect Donald Trump said in June.
Believe him. The market does.
The stock market is currently pricing in a massive Trump-inspired fiscal stimulus package that will pull the U.S. economy out of its current malaise. Take a look at the staggering market performance since November 7th:
- S&P 500: +4.4%
- Industrials (XLI): +8.8%
- Russell 2000: +11.8%
- Financials: +13.5%
Here's what's currently on the table based on Trump's existing budget proposals:
- Cutting the tax brackets to three: 12%, 25%, and 33% (down from seven tax brackets between 10% and 39.6%)
- Eliminate Obamacare’s net investment income tax which added an additional 3.8% surcharge to the tax on capital gains and dividends of 20% for top earners.
- Lower the business tax rate to 15% from 35% for corporations and 39.6% for sole proprietorships and partnerships
- A $1 trillion in infrastructure spending package (with an as-of-yet undetermined level of private-public partnership involvement)
As Hedgeye Director of Research Daryl Jones wrote in today's Early Look:
"While it is purely speculation on what a Trump administration might do at this early juncture, we do think his love for debt will prevail in the short run."
In the Chart of the Day, we’ve highlighted the potential impact of Trump’s tax plan on the nation’s balance sheet. In short, the debt-to-GDP ratio would baloon from 73% currently to 120% over the next ten years.
With stocks rebounding out of what has been a protracted industrial recession, the market is sending a clear signal that investors believe Trump’s presidency will be a game changer for the U.S. economy. We're skeptical and have a few questions we're still parsing on that.
More to be revealed
