Asset Management: Multi-Asset Insights

A short honeymoon, a dollar swoon and Kim Jong-un: 100 days of Trump

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Source: FiveThirtyEight, BMO Global Asset Management
Source: FiveThirtyEight, BMO Global Asset Management

April 29, 2017, marked the 100th day of the never-dull Trump administration. Executive orders, Supreme Court nominations, debates over health care, White House staffer intrigue and debt ceiling negotiations have produced an endless barrage of headlines over this time period. With this in mind, we thought it wise to step back and evaluate the tone and substance of the administration, especially in relation to our expectations immediately post-election.

TRADE

  • ExpectationNegative. After taking a hard line on trade during the campaign, we expected that President Trump would move closer in line with the trade stance of the Republican Party.
  • RealityNeutral. Though he pulled the U.S. out of the Trans-Pacific Partnership and signed an executive order for the renegotiation of NAFTA, the president hasn’t followed through on some of his more dramatic campaign promises like labeling China a currency manipulator.
  • Looking ForwardNegative, but less so than our initial expectation. We expect Trump’s moderation on the subject of trade to persist, though he will pick and choose his battles.

TAXATION

  • ExpectationPositive. We expected a broad tax reduction rather than large-scale tax reform along with earnings repatriation.
  • RealityPositive. The tax framework released on April 26 included tax decreases for individual and businesses along with earnings repatriation for foreign earnings held abroad.
  • Looking ForwardPositive, but less so than our initial expectation. We expect the final bill to include tax cuts rather than permanent tax reform, limiting the scope of change.

GOVERNMENT SPENDING

  • Expectation Positive. We believed that there was room for bipartisan action on infrastructure spending. However, we thought there would be pushback from the Tea Party on higher deficits.
  • Reality Neutral. The president mentioned infrastructure during his State of the Union speech but has since gone quiet. The initial budget included large cuts to the federal bureaucracy and increases to defense spending, but little has occurred otherwise.
  • Looking Forward Positive, but less so than our initial expectation. There would seem to be room for Republicans and Democrats to collaborate on infrastructure spending, but partisanship has prevented action.

IMMIGRATION

  • ExpectationNegative. Deportation of low-skilled workers could stoke mild wage inflation. Fewer changes in skilled worker visas.
  • RealityNeutral. Mass deportations have not materialized, though there is noticeably more activity of ICE agents. The president signed an executive order reviewing the process for getting H-1B visas for specialty workers, which could hurt IT outsourcing firms.
  • Looking ForwardNeutral. We expect some changes to the H-1B program, benefiting skilled workers and hurting companies reliant upon lower-skilled immigrants. The reduction in undocumented workers may hurt certain sectors such as agriculture but should have less effect on the overall economy.

REGULATION

  • ExpectationPositive. We believed there would be a moratorium on new regulation and a broad re-evaluation of existing regulations.
  • RealityPositive. President Trump signed an executive order that requires that for every new regulation created two be repealed. Republicans have worked to roll back regulations passed toward the end of the Obama administration relating to energy and the environment.
  • Looking Forward Positive. The president’s actions on regulation, especially those on financial and environmental regulation, may lead to a large fight with Democrats. The reduction in federal government regulators should slow the enactment of new regulations and the enforcement of current ones.

FOREIGN POLICY

  • ExpectationNegative. Vice President Pence would push the administration toward a more traditional Republican policy, but shifting alliances may upset the current order.
  • RealityNeutral. The president has backed away from calling NATO obsolete and engaged the Syrian military in a limited manner. Tensions have risen in the Korean peninsula.
  • Looking ForwardNegative. A renewed sense of urgency around the North Korean threat has the potential to test U.S. relations with China. A bare-bones state department signals a preference for action over diplomacy.

Some missteps in the early days of the administration have caused markets to question President Trump’s effectiveness and ability to enact wholesale change. While we agree skepticism is warranted, many of the actions taken thus far have matched our expectations. It remains clear the administration is committed to a pro-growth policy agenda. Only the timing and ultimate scale are in question.

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