Stock Market Spikes under Trump Administration - Imminent Collapse in Sight?
Investors are taking President Trump's policies seriously, focusing on tax cuts and deregulation, while dismissing disliked policies like immigration clampdowns and high tariffs as campaign rhetoric. However, the potential risks and consequences for Wall Street are significant, especially given Trump's executive authority to impose tariffs and change immigration rules.
Increased Market Volatility and Investment Risk
Trump's recent executive order allows retirement savings plans to invest in alternative assets such as private equity, cryptocurrencies, and real estate. This move may expose millions of retail investors to greater risk and potential losses, as private equity performance has reportedly declined and selling assets has become difficult for these firms.
Wall Street Benefit but at Retail Investor Expense
The orders are perceived as a windfall for Wall Street private equity firms, potentially allowing them to access small investors’ funds. This risks eroding public trust and could lead to regulatory backlash or investor lawsuits if losses mount.
Tariffs and Immigration Rule Changes Impacting Market Conditions
Trump's ability to impose tariffs and restrictive immigration policies via executive order can disrupt supply chains, raise costs for U.S. businesses, and limit labor force flexibility, potentially slowing economic growth. These effects can raise inflationary pressures or contribute to slower corporate earnings growth, adding complexity to market expectations and valuations.
Current U.S. Inflation and Bond Yields Context
Inflation remains a central concern, with the Federal Reserve's monetary policy actions interacting with fiscal and trade policies. Tariffs can raise input costs, exacerbating inflation, while higher bond yields generally increase borrowing costs for companies, potentially dampening investment and spending.
Regulatory Uncertainty and Financial Institutional Challenges
Another executive order seeks to limit "debanking" based on political or religious grounds, creating compliance challenges and influencing banking sector risk appetite, also impacting market liquidity and cost of capital.
The Future Outlook
Many "Trump trades" underperformed over the president-elect's first term, and there is a bullish attitude towards US assets. However, the US is "way overdue" a recession and big market correction at some point over the next four years. Dennis Kelleher of Better Markets predicts a potentially catastrophic correction down the road.
James Mackintosh in The Wall Street Journal advises taking Trump policies seriously, not literally. The incoming president's "basic instinct" to cut government spending is good, but he won't make the serious changes to welfare policies that would be needed to balance the books.
Credit is "meaningly tighter than many currently working in finance have ever known". Inflation, as measured by US core inflation (excluding volatile food and energy prices), rose to 3.3% in October. The nomination of scandal-ridden loyalists promises a lot of bickering ahead that could stop Congress from doing anything useful. As long as federal deficits stay in the $1.5 trillion range, the new administration will "be dealing with inflationary issues".
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- Amidst the potential impact of tariffs and immigration rule changes, investors might consider diversifying their portfolios to include safe-haven assets like gold, given the volatile market conditions.
- With the Federal Reserve carefully monitoring inflation rates and Trump's tariff policies, interest rates could increase to combat potential inflationary pressures, making bond investing a useful tool for yield.
- To stay informed about the latest developments in finance and the business world affected by Trump's policies, investors may find it beneficial to subscribe to a well-researched newsletter that analyzes macroeconomic trends and offers investment advice.
- Following the executive order on retirement savings, a deeper appreciation for the advantages and risks of alternative investments, such as private equity, cryptocurrencies, and real estate, becomes crucial for those considering these avenues for their investment dollars.
