What seemed like a never-ending campaign finally ended on November 8 with the election of Donald J. Trump as President of the United States of America. With this huge uncertainty now behind us, we can start to speculate about the potential impact of the Trump presidency on the economy and markets.
In the short term at least, the stock market appears to be very bullish on President Trump. Stock market futures plummeted on Election night when it became apparent that Trump would win, but they quickly reversed course once the markets opened. All three major market indices soared into record territory in the days following the election.
Only time will tell what a Trump presidency will mean for the stock market in the longer term. But economists are already offering a glimpse at what they believe is in store for the economy and markets in the early days of a President Trump administration.
Economists Weigh In
The Wall Street Journal surveyed 57 economists nationwide during the three days after the election to get their forecasts for several key economic indicators and their feelings about the economic future of the country. In general, the economists were cautiously optimistic about the economy due primarily to an expectation of lower corporate taxes, less government regulation and a big boost in infrastructure spending.
The good news is that economists expect economic growth to strengthen under President Trump. They are forecasting GDP growth of 2.2 percent next year and 2.3 percent in 2018 as the fiscal stimulus of infrastructure spending kicks in. This is up markedly from the roughly 1.5 percent GDP growth of the past 12 months.
Along with stronger growth, however, economists are also forecasting higher inflation and interest rates. They predict inflation rates of 2.2 percent next year and 2.4 percent in 2018, which would mark the first time inflation has exceeded 2 percent in consecutive years since before the recession between 2007 and 2009.
Biggest Economic Concerns
The biggest worries among the economists surveyed by The Wall Street Journal are international trade wars and economic missteps by a Trump administration. If the administration moves to impose tariffs on foreign nations, this could lead to higher trade barriers and import prices and shrinking export markets for U.S. businesses. “Everyone will lose if there’s a global trade war,” one economist said.
Meanwhile, another economist noted that some of the polices the new administration might enact quickly — such as new restrictions on trade and immigration — could actually harm the economy. Some economists are also concerned about ongoing deterioration in business investment, especially in equipment and structures.
Some of the economists also noted that the consolidation of political power in Washington (the Presidency and both Houses of Congress) will lessen political gridlock and enable legislation to pass that could help the economy. Consolidation of power should also eliminate the 11th hour budget battles we’ve seen in recent years while allaying concerns about debt and deficits.
With the current economic expansion closing in on 90 months, which is well above the average post-World War II expansion length of 58 months, many pundits believe that we’re long overdue for a recession. The economists surveyed by The Wall Street Journal put the chances of a recession sometime in the next year at about one in five, which is down slightly from their forecast three months ago.
If you have questions about the potential impact of the election on the economy and on your investment portfolio specifically, please give us a call. We’d be happy to discuss this with you in more detail.