2016 Election: Thoughts The Day After

It is reasonable to expect that the financial markets will see an increase in volatility over the coming months as folks try to decipher exactly how a Trump presidency will look, feel, and sound. I thought I would share some initial thoughts, both on the election result and how U.S. policy might evolve in 2017.

  • The conventional wisdom as people digest the election results is likely to be that Trump had a unique ability to connect with a set of voters that might not have been regular voters in past cycles and were sick and tired of the political status quo (high turnout), whereas Clinton had a last name and a resume that defined that very persona (low turnout). I doubt it will get much airtime, but it turns out that only one of those scenarios played out. Below is a summary of the popular vote totals from the last four elections. I think it is quite striking and explains the result this year.popvote
  • From a business and financial market perspective, there are several issues that are likely to be addressed in 2017 now that Republicans will control the executive and legislative branches of government. They have both positive and negative aspects, which means that the exact details will be very important. Several come immediately to mind:
    • Overseas cash repatriation
    • Corporate tax reductions
    • Personal income tax reductions
    • Infrastructure spending
  • In every case, the core question will be how/if the tax cuts/spending increases are paid for
  • If not, more borrowing will increase the deficit and debt, which would exacerbate an existing problem
  • If they are paid for, it will be important to see which segment of the country takes the brunt of the cuts. We have seen in the past that cutting services for the working class to pay for lower taxes for the wealthy and corporations doesn’t work so well, so the ideal scenario would be relatively equal benefits for everyone
  • Bringing foreign cash back to the U.S. should be a no-brainer no matter your political affiliation. There is no doubt that it benefits the wealthy more than others, but it makes no sense for trillions of dollars to be idling in foreign bank accounts in perpetuity
  • Lower corporate taxes would definitely boost the stock market and it would be a very rational response. Again, the key is how they would be paid for (if at all) and whether cuts elsewhere would offset the benefits. Again, wealthier people have more assets invested in the markets, but higher stock prices help the value of retirement accounts no matter the size
  • Starting in 2017 it should be abundantly clear what the priorities of the new administration are and how they will approach legislating them. Only then will we have a sense for whether economic optimism is warranted or not.