With the inauguration of Donald Trump one day away, we thought it an opportune time to discuss several ways his administration might affect the markets.
With the inauguration of Donald Trump one day away, we thought it an opportune time to discuss several ways his administration might affect the markets. Much of the information below is summarized from a recent American Funds white paper.
1. Governmental regulation
Mr. Trump is a proponent of reducing regulations that affect U.S. businesses. American business is overwhelmingly small business. According to the U.S. Census Bureau, in 2012 the share of all U.S. businesses with less than 20 workers was 97.9%. Such businesses are less able to absorb the cost (both in terms of time and money) of additional governmental regulations and, thus, should benefit from the incoming administration’s stance, which should lead to increased employment and wage growth in the future.
The incoming administration will pursue lower income tax rates for workers and corporations. Mr. Trump has pledged to simplify the tax code for individuals by reducing the number of tax brackets and the top marginal rate. Consumer spending is a large part of overall GDP, and increased disposable income could lead to increased spending and/or continued deleveraging of households’ balance sheets.
He also campaigned to reduce the top corporate tax rate from 35% to 15%. To give you perspective, compared to eight other major industrialized countries, the U.S. has the highest corporate tax rate (the others, in descending order, are: France – 34%, Australia – 30%, Italy – 28%, Spain – 25%, Japan – 23%, U.K. – 20%, Germany – 16%, and Canada – 15%).Such a significant reduction might incentive U.S. companies to repatriate some of the estimated $2 trillion in corporate earnings that are “trapped” overseas, and thus benefit the U.S. economy.
Part of Mr. Trump’s campaign was based on building a wall on the Southern border of the U.S. to reduce the flow of immigrants. In addition to that, he has discussed a major spending agenda that would likely include repairing and/or replacing roads, bridges, tunnels, seaports, airports, electric grids, etc.
Donald Trump has pledged to rewrite existing trade agreements to be more pro-U.S. Some interpret this as the first step to a strongly protectionist stance, and worry that a trade war might occur. Others see it as an opportunity for the U.S. to achieve better terms for the benefit of its citizens. He has openly discussed changes to NAFTA and called for tougher rules on trade with China. Perhaps he will seek to make it more difficult for firms to move jobs or operations abroad.
The President-elect has made no secret of his distaste for Obamacare. From 2000 through 2013, the average annual increase in consumer spending on health insurance was about $12 billion; in 2014, the year Americans were required to buy health insurance, the annual increase was approximately $82 billion. While time will tell whether the law is completely repealed and replaced, repealed and rebranded, or tweaked in some other fashion, it would seem potentially politically disastrous to simply cancel coverage for the many millions of Americans who received coverage under the law.
If you’re interested in learning how your investments may be affected by President Trump’s administration, contact us to schedule an appointment with our Madison area financial advisors today.