MarketEye: Why Trump’s popularity is up c.5% since start of the year

Defined as an ideological movement that says citizens are being disadvantaged and mistreated by a small group of privileged elite, it is easy to see why populism has been on the rise.

In the US, real wages for middle- and low-wage earners have been stagnant for more than a decade, yet the top 5% of earners have experienced a significant increase over the same period. If you see a neighbour that is doing really well and you feel you are struggling then that is when people tend to get dissatisfied.

This period has also coincided with the post-financial crisis recession and the slowest recovery from a recession in close to 100 years. Populism was seen as one of the key drivers behind the election of President Donald Trump in November 2016, but it is not solely the US that has seen it rise. Changes in the type of manifesto individuals are elected on can bring changes in policy, which in turn has an impact on stock markets.

Now we have a ‘populist’ president and he has different policies and methods of communicating with the electorate. He is seen as controversial, but despite his style and approach, he has been successful in terms of getting some of his key policies enacted. Apart from Obamacare reform, he has succeeded in lowering the corporate tax rate, allowing US companies to repatriate earnings at a low tax rate, and commencing regulatory reform.

We view the majority of his headline policies as pro-growth and pro-business and therefore see opportunities in the US equity market.

Chuck Cook – portfolio strategist. BNY Mellon Asset Management North America 

Defined as an ideological movement that says citizens are being disadvantaged and mistreated by a small group of privileged elite, it is easy to see why populism has been on the rise. In the US, real wages for middle- and low-wage earners have been stagnant for more than a decade, yet the top 5% of earners have experienced a significant … read more

  • Download
  • Print
0 comments | Join the conversation, comment now
Where will Trump find tax-cutting wriggle room?

Since Donald Trump’s election, the markets have been abuzz on the transition from monetary to fiscal stimulus. President Trump has promised tax reform, both personal and corporate, as well as “yuge” fiscal stimulus and a lower overall budget deficit. But how much room does the new administration have to manoeuvre?

President Reagan argued for a tax cut based on high marginal tax rates that dissuaded people to work. But the marginal tax rate was 69% when Reagan took office in 1981. The highest marginal tax rate today is 40%. Between Presidents Reagan and George H. W. Bush the marginal tax tumbled from 69% to a modern low of 28%. Will a drop from today’s 40% make a difference and increase tax receipts? Can President Trump afford to drop the marginal tax rate as low as 30%?

The fiscal deficit during earlier tax cuts started from smaller deficits. With today’s deficit at -3.5% compare that to a +1.9% surplus during President George W. Bush’s tax cut and -2.2% deficit during Reagan’s first tax cut, does President Trump have much wiggle room on a fiscal balance sheet that has yet to recover fully from the global financial crisis? Will the fiscal hawks in the US House of Representatives lower their guard for the sake of party over principles? These are questions that remain unanswered but one aspect is clear: the current US budget context seems more restrictive than any in recent memory.

Karsten Jeske – Mellon Capital, a BNY Mellon company

Since Donald Trump’s election, the markets have been abuzz on the transition from monetary to fiscal stimulus. President Trump has promised tax reform, both personal and corporate, as well as “yuge” fiscal stimulus and a lower overall budget deficit. But how much room does the new administration have to manoeuvre? President Reagan argued for a tax cut based on high … read more

  • Download
  • Print
0 comments | Join the conversation, comment now
The global uncertainty principle and why investors should care…

The basic assumption by markets at the moment is that President Trump and the Republican administration will engage in fiscal stimulus. The question to ask is whether that fiscal stimulus is successful or whether it will end in failure. If it is successful then perhaps it will lead to US dollar strength and growth both in the US and the rest of the world and perhaps even a normalisation of the US Treasury curve. If it doesn’t succeed, as many people expect, then likely there will be a reversal of market expectations, an increase in policy uncertainty and perhaps a lower growth profile than currently priced in. These two routes have very different outcomes for the prospects of emerging market fixed income and equity markets.

There are some variables around this. First, think about President Trump and his tweets: they generate a significant amount of headline risk as we have seen already in the early weeks of his administration. That in turn creates uncertainty and perhaps a higher risk premium for some of the emerging markets such as China and Mexico and even for developed markets like Europe. It is too early to tell the result of this rhetoric but there is definitely a whiff of protectionism in the air.

The other variable is whether the Republicans in control of Congress have a high enough tolerance to increase the deficit in order to engage in this type of fiscal stimulus, which is not particularly clear to us at this point. Putting all this together, we believe the level of uncertainty in markets is going to fluctuate a lot over the next few months.

Colm McDonagh – Insight, a BNY Mellon company

The basic assumption by markets at the moment is that President Trump and the Republican administration will engage in fiscal stimulus. The question to ask is whether that fiscal stimulus is successful or whether it will end in failure. If it is successful then perhaps it will lead to US dollar strength and growth both in the US and the … read more

  • Download
  • Print
0 comments | Join the conversation, comment now