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The Trump Effect on the U.S. Economy

Claus te Wildt and Stephanie Link, two of today's top investment analysts, shared their takes on key trends, indicators and what the future may hold for the U.S. economy at a March 20 “super session” at the NAPA 401(k) Summit.

Link, managing director of active portfolio management at TIAA Investments, listed a number of positive economic indicators in the U.S. economy:


  • The consumer sector – 70% of GDP – is showing signs of life, led by a turnaround in consumer confidence. “Consumers are feeling better, especially about home values; housing valuations are at a decade’s high,” Link noted.

  • “We’re seeing cycle highs in consumer optimism,” she said, including spending on experiences, electronic devices and cars.

  • Manufacturing, at 12% of GDP (but with a significant multiplier effect), is poised for increased spending, though there is no increase yet.

  • Bank lending is trending up.

  • The dollar has stabilized, and interest rates are going up, but slowly.



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“Add it all together,” Link said, “and the U.S. economy is poised to accelerate.”

 

The Trump Factor

Claus te Wildt, investment director at Fidelity Investments, offered an interesting view of President Trump. “I view Trump as a tech stock,” he said. “He could fly high, or he could be a train wreck. We don’t know yet which … Normally presidents don’t matter much [to the economy], but I think this one could be consequential.”

In te Wildt’s view, President Trump “is very lucky to be taking over the U.S. economy right now.” Why? “Manufacturing has been coming back since 2011; we’ve worked out excess housing inventory; and companies have more cash than they know what to do with,” he said. “Then Trump steps in to add more fuel to the fire – bringing back jobs and cash from overseas, and more spending on defense and infrastructure.”

However, te Wildt sees three risk factors in Trump’ approach to spurring a continuing recovery:


  • Geopolitical: Threats from North Korea, ISIS, and the Middle East in general.

  • Execution: Efforts to repeal Obamacare raise questions about the administration’s ability to execute. “We don’t know whether he can deliver on tax reform,” te Wildt said.

  • Policy: Trump’s trade policies are not beneficial to the U.S., te Wildt declared. And if 3 million people are deported under a new immigration policy, there will be a severe impact on the U.S. economy, he noted.



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All in all, this is a volatile time, te Wildt concluded. As a result, he said he is recommending investment grade corporate bonds for safety.

 

Looking ahead at Trump’s legislative and regulatory agenda, Link said she foresees tax reform next year, and infrastructure spending in 2018 or 2019, but regulatory reform sooner, citing the enthusiasm for regulatory reform among businesses of all sizes in the wake of Trump’s election. Te Wildt also emphasized the importance of the enthusiasm for Trump’s plans for deregulation, especially among small businesses: “All went straight up after election,” he said.

As the economy improves, Link expects cyclicals to outperform defensives, especially in the financial, tech, defense, experiences and energy sectors. She also touted expected earnings growth in niche sectors like construction cranes, truck engines and aero tech.

Te Wildt on Tax Reform

Te Wildt is not bullish on corporate tax reform. “If there are across-the-board corporate tax cuts, everybody wins,” he explained. “But the danger is if those cuts must be revenue-neutral, because then you create winners and losers. Some industries do well and other pay the price. Then, in addition to political conflict – Democrats versus Republicans – you have conflicts between industries. That’s why I’m not sure corporate tax reform or the proposed Border Adjustment Tax are doable.”

 

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