Wall Street fully expects President-elect Donald Trump to lower taxes, cut regulatory red tape, and enact fiscal stimulus. As a result, inflation expectations have been rising (in the next five years markets expect 2.13%, up from 1.64% just three months ago). Meanwhile, consensus estimates for 2017 U.S. economic growth have also been rising (to 2.3% for year-end 2017 versus 2.1% before Trump's win).
Since Election Day, exuberant investors have sent the S&P 500 up 6%. The small cap Russell 2000 has gained almost 14%. All of this begs an important question... Are Trumponomics expectations realistic?
First, A brief list of Trump Policy proposals
#CorporateTax #IncomeTax #Infrastructure #Repatriation
Wall Street is giddy over tax cuts and infrastructure spending. Here's a list of some of the proposed policies:
- Reduce the corporate tax rate from 35 percent to 15 percent.
- Cut the number of income tax brackets from seven to three – 12%, 25%, 33% (from 10%, 15%, 25%, 28%, 33%, 35%, 40%)
- Repeal the estate tax (a tax of 40% levied at death on estates with assets greater than $5.45 million)
- Infrastructure plan of $1 trillion
- A one-time tax holiday for the repatriation of the $2.6 trillion in corporate profits held overseas at a rate of 10% (versus existing rate of 35% minus tax credits equal to whatever already paid to foreign governments)
What does this mean for U.S. debt?
Trump Calls Himself the "King of Debt": He Would be
#Debt #CBO #TrumpTaxPlan
This should lay out the scope of Trump's tax cut and fiscal spending proposals. As you can see in the chart below, the CBO estimates Trump's tax plan would cause the Federal debt to balloon, from 75% currently to 120% by 2026.
Will Trumponomics Succeed? We'll See, But The U.S. Economy is Accelerating
#Trumponomics #Volatility $SPY
As Hedgeye Director of Research Daryl Jones writes in today's Early Look, "The expectations for a strong(er) economy are being priced into the market. The S&P 500 has now gone 64 days without a -1% down day." Meanwhile, as you can see in the Chart of the Day below, the VIX, a measure of equity market volatility, is literally at a 10-year low.
Time will tell whether Trump's policies live up to the hype. For now, the more important point is that U.S. growth is accelerating (and this has little to do with Trump).
As we've noted before, Trump didn't kickstart the U.S. economy. He had the good fortune to be elected just as the economic data was turning. Now, everything from Durable Goods to Retail Sales to formerly recessionary Industrial Production numbers are accelerating.
For now, we remain bullish on U.S. equities, specifically the S&P 500 (SPY), and suggest investors sell Long-Term Bonds (TLT) and Gold (GLD) as the economy continues to accelerate.
