Stocks Still Hoping for Trump's Agenda to Pass
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. After Donald Trump was elected president in a stunning upset last fall, stocks, bond yields, and the dollar all rallied in hopes that a President Trump would enact significant economic reforms. The market gains were commonly known as the Trump trades. Those trades have wound down as President Trump's legislative agenda has stalled. But at least one market is holding out hope for measures like tax cuts and stimulus spending to be enacted. Joining us is Justin Lehart, heard-on-the-street columnist for The Wall Street Journal. Justin, it seems like the markets are considerably less hopeful that the Trump administration will enact meaningful legislation anytime soon, especially in the wake of the latest failure by the GOP to repeal and replace Obamacare.
Yeah, I think that the failed effort, you know, at least it seems pretty failed at the moment. It threw open the divisions within the GOP that suggests that we're going to have a tougher time with, you know, tax cut in particular. And also just this effort chewed up so much of the legislative clock.
What were the market reactions immediately after Trump's election and what are 'Trump trades'?
We're six months in, nothing really show for anything.
It's pushed everything back.
Yeah, it's pushed everything so far back. Next, Congress has to deal with the budget. They're going to have to deal with the debt ceiling, which is sort of a looming, somewhat scary thing out there. You know, we're really pushing up against the midterms. And, you know, once you get into midterm campaign mode, people don't want to be doing controversial stuff. They want to be going to parades and pie eating contests and, you know, the business of winning an election.
Which Trump trades have wound down? Which markets have seen their rallies stall since the start of the year?
A lot of them. You know, the dollar really rallied on the back of the election. There was this idea that stimulus would bump up the economy, that that would make the U.S. a better place to invest relative to other places.
Why have 'Trump trades' wound down as the administration's legislative agenda stalled?
So, you know, the dollar rallied. That dollar rally is completely unwound now, right? Some of that has to do with, you know, things doing better in Europe and so on, but really, you know, completely gone. Even the peso, the peso cratered, the Mexican peso I'm talking about, cratered after the election and that's actually back above its pre-election levels. If we look at the bond market, Treasury sold off, pushed the yields higher on expectations of inflation. Treasury yields have slipped this year, even as the Fed has raised rates. and the inflation expectations embedded in the treasury market have completely unwound. Then if you look at particular stocks, infrastructure plays, Vulcan Materials, those things have shot up, and they've fallen since.
On the other hand, the overall stock market is looking really strong. Valuations are really steep. You have to think some of that is about this – So it's not earnings so much as this hope that something will get done? Yeah, it's hard to tease out, right, because some good things have been happening globally. The U.S. economy is just sort of doing what the U.S.
How did the failed Obamacare repeal affect prospects for tax cuts and stimulus?
economy is doing for a while, but globally we're on much better footing now. Companies are earning a lot more money overseas, and that's really helped boost earnings. And we've also seen that if you look within the internals of the stock market, If you look at high-tax stocks, so the stocks that would benefit the most from a cut in taxes, so those things did really well right after the election, but those have underperformed other stocks significantly. basically this year. So definitely the stock market is not as enthusiastic. It's enthusiastic about maybe other things. It's not as enthusiastic about tax cuts. So what you have to ask yourself is, if you think that a tax cut is going to happen, then maybe the bar has really been lowered for the stock market, and maybe you get a tax cut, and then that's great for stocks.
On the other hand, if you don't think a tax cut is going to happen,
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–1:11
2
What were the market reactions immediately after Trump's election and what are 'Trump trades'?
1:11–1:59
3
Why have 'Trump trades' wound down as the administration's legislative agenda stalled?
1:59–3:19
4
How did the failed Obamacare repeal affect prospects for tax cuts and stimulus?
3:19–6:51
Speakers
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