How do we invest in Trump’s America?
Will this presidency undermine the positive momentum of the market?
In the short time that President Donald Trump has occupied the White House, the United States stock markets have reached all-time highs more than once.
One of the many current political debates centers on whether the markets are reflecting Trump’s intended policy changes, or are happenstance of the new presidency. While I am not intending to settle the debate, I do want to help the prudent business owner and investor understand how the markets are responding, what Trump intends to change, and what business owners and investors can do considering the ambiguity.
Let’s begin by unpacking two of the pro-business policies Trump championed during his campaign: tax reform and deregulation.
Tax reform, no stranger to the Republican Party has generally been met with praise from the business community. For the closely held business owner, whose income often “flows through” to their personal tax return, a reduction in individual income tax could have an immediate positive impact.
For corporate America, Trump has discussed not only a corporate tax reduction, but also a tax break on “repatriating” dollars trapped overseas. Many large companies agonize over how to bring profits earned globally back to the U.S. without giving a significant portion to Uncle Sam. Should the Trump administration have success in reducing the tax implications of repatriating profits, significant dollars may make their way back into the U.S. market.
Wall Street knows this, and is optimistic of the outcome, which could be responsible for some of the recent market growth. In short, tax reform, simplification or reduction, will be appealing to many investors and business owners alike.
Deregulation could be causing another market tailwind. Businesses across the U.S. spend significant time and money on regulation compliance. Legislation has put tremendous financial pressure on companies across the country. Irrespective of opinions on the merits of deregulation, a reduction in the regulations of corporate and Main Street America will likely be met with praise from the business community. Here, again, the markets are cautiously optimistic.
Investors and business owners are now holding their collective breath over the new administration’s ability to deliver on its campaign promises, especially following Trump’s initial attempt to repeal and replace the Affordable Care Act.
Time will tell whether the president can rally Congress to deliver on health care reform, tax reform and deregulation.
That said, don’t stand on the sidelines waiting for Congress to answer these questions. If one or both policies fail to pass, don’t expect a bear market.
Since the Great Recession of 2008, the economy has been in recovery. Banks have cleaned up their balance sheets and are stronger than they have been in decades, while U.S. consumers paid down or wrote off debt at historic levels. To that point, we have not seen a quarter in which consumers carry less debt than the previous quarter since 1945.
Meanwhile, the oil strangle hold on the economy has ended, and the global economy has even turned a corner. Frankly, the market is reflecting all the positive indicators of a healthy and expanding economy, not purely the euphoric optimism of a pro-business new president. An unsuccessful delivery of policy from the Trump administration may cause a hiccup, but should not undermine the positive momentum of the market.
How then should an investor and business owner plan for this uncertainty?
The same way a prudent investor has followed every economic swing and presidential change of the past: stick to a financial plan, diversify your portfolio, and continue investing for the long-term.
Time heals all wounds, and helps all extremes (political or market-related) revert to a mean. Waiting on the sidelines for more certainty with political policy, or attempting to time the market will result in an emotional distraction from the one thing investors can control – their investment of new dollars.
Let others battle for attention over what might happen today, and put your focus on a long-term plan designed for tomorrow.
The opinions expressed are those of Royce Zimmerman. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security.