- The degree to which the election results impact volatility will depend a great deal on which policies are actually enacted as a result of the changes in Washington.
- Corporate tax reform, including repatriation that allows companies to bring overseas cash back to the U.S. at a discounted tax rate, stands a very good chance of being passed following the Republican sweep.
- We do not believe the election results have changed the Federal Reserve’s outlook.
The results of the November 8, 2016 U.S. presidential election have not changed our long-term outlook for the U.S. economy. Elections do not in and of themselves change economic trajectories, policies do.. We need to wait to see which policies Trump moves forward with and the details of those policies. Our LPL Research Recession Watch Dashboard continues to point to an overall low risk of recession within the next year.
THE PRESIDENT PROPOSES, CONGRESS PASSES
President-elect Donald Trump, whether you support him or not, won't get everything he campaigned over because the process of lawmaking is a compromise, even within one’s own party. All presidents—even those like Trump who sweep into office while holding both houses of Congress— will have to compromise. Why?
Checks and balances are an important part of our political system. Although Trump is not a traditional politician, he will likely share the experience of leaving a fair amount of his campaign agenda undone. Checks and balances help to eliminate the extremes that may be making investors nervous. Further, newly elected presidents tend not to have as much political capital as they think they do, which is one of the reasons they are typically unable to get all of their top priorities accomplished. Trump has a narrow Senate majority, won a closely contested election, and the Republican Party (not to mention the Democratic Party) is fragmented, making the policy path more difficult. Still, he is likely to make a difference in several key areas impacting the economy:
- Taxes, both corporate and personal
- Infrastructure and defense spending
- Trade and tariffs
In addition, his election may have an impact on the decisions of the Federal Reserve (Fed) this year and over the next several years. We’ll address the tax and infrastructure proposals, as well as the Fed, in this commentary, and plan to discuss the impact of President-elect Trump’s other economic related proposals at a later date.