A busy week for markets: Election results and a US Federal Reserve rate cut.
Before we go into headlines, we’d like to extend our heartfelt thanks to those veterans who have bravely served our nation.
- Immediate market reaction was mixed following the election outcome. Outlooks for a pro-growth policy boosted stocks, while the prospects of an increase in inflation pushed bond yields up and bond prices down.1 Bond yields and prices move inversely, so an increase in yields causes a decrease in prices.
- Based on President-Elect Trump’s campaign narrative, there are several policy areas that may see significant change under the new administration. Here are some of the policy areas to watch, and their potential economic impacts:
- Trade: The Trump campaign has mentioned potential tariffs —10% on all imports and 60% on Chinese goods. Trade policies like these have the potential to slow growth and push inflation higher if businesses affected by tariffs pass on the extra costs to consumers.2
- Immigration: Changes in immigration policies, like those proposed during Trump’s campaign to significantly increase deportations or limit legal immigration, may reduce the labor force. This may prompt employers to raise wages in response to labor shortages, possibly resulting in increased inflation and slower economic growth.2,3
- Fiscal/Regulatory: The prospects of lower corporate taxes and less regulation are a possibility under the president-elect’s plans, both of which have the potential to be supportive of corporate earnings.4
- Taxes: Trump’s victory could see the possible extension of all or some parts of the 2017 Tax Cuts and Jobs Act (TCJA), set to expire in 2025, which is a point of interest for many.4 This tax reform lowered rates across the board, while also doubling the standard deduction and increasing the Child Tax Credit.
- Policy shifts can take time to unfold, often stretching across months or even years. Additionally, the policies that eventually take effect may differ from the promises made on the campaign trail. Read more on the new administration and what to watch for in the months ahead.
- The US Federal Reserve (Fed) held their meeting on November 7th and cut interest rates by 0.25 of a percentage point. This decision aims to reduce inflation while supporting job growth. As the new administration takes shape and inflation trends shift, the Fed may reconsider its stance on interest rate cuts.5
Institutional Portfolio Manager, Strategic Advisers LLC
"According to analysis done by the nonpartisan Congressional Budget Office (CBO), extending tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA) for the next 10 years could add upwards of $4.6 trillion to the federal deficit.4 Therefore, it’s unlikely that a Republican legislature would extend the act outright in its current form. Instead, we may very well see a revised package."
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