”The election victory of former President Donald Trump and the Republican Party ignited a broad-based market rally last week, with major U.S. indexes all hitting record highs. While we believe there are factors supportive of a grind higher in U.S. Equities, it’s not all clear sailing for the markets. Why? Because an administration that favors higher tariffs, potentially, on friends and foes alike, appears to be prone to more deficit spending in the face of a massive federal budget deficit and is isolationist in nature is on a collision course with three inconvenient truths, outlined below. First, boosting tariffs on China puts at risk U.S. access to key minerals and metals needed to power economic growth in America. Second, with the next administration likely to extend the 2017 Tax Cuts and Jobs Act, while cutting the corporate tax rate, the federal budget deficit is likely to remain large and therefore an ongoing concern to the capital markets. Finally, foreign investor confidence could be undermined by an administration wielding protectionist threats against its very own foreign creditors.”
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Morten W. Langer
