It’s fair to say the stock market is over its early jitters about a Donald Trump presidency. All major indices have risen to record levels for the first time in nearly 20 years, and the Dow Jones industrial average is up more than 800 points since Trump’s victory.
And what’s not to like — at least so far? As I pointed out on these pages both before and after Trump’s victory, the market’s initial reaction to a wild card like Trump was overwrought, his free-market prescriptions were exactly what was missing from the eight years of Obamanomics — and stocks were bound to show their appreciation.
Now, with the GOP controlling the House as well as the Senate, traders see real economic growth on the horizon, not just a Fed-induced stock-market bubble where interest rates are so low, there’s no other place to put your money.
What, specifically, does the market like about Trump’s plans? His promise to cut both corporate taxes and red tape will translate into higher corporate profits so businesses can expand and create jobs. Real unemployment can finally decline not because people are dropping out of the workforce but because they’re actually working again.
In other words, Trump’s plans for taxes and regulations are good for Wall Street and Main Street.
As long as President Trump keeps his promises. As we know, campaign vows aren’t exactly written in stone
Already Trump is backing away from some of his signature campaign issues. Sparing the country a prosecution of Hillary Clinton over her use of a private email server is a good idea, as is Trump’s decision to turn down the temperature on his trade-war rhetoric with China and Mexico.
But Trump’s other near-flip-flops are more troubling. He now professes an open mind about climate change, which might mean he won’t cut environmental regulations that are strangling US businesses. Then there’s Trump’s recently stated intention to possibly just “amend” ObamaCare after campaigning that he would “repeal and replace” the ridiculous quasi-socialist health care law burdening Americans with sky-high premiums.
The good news is that Trump has surrounded himself with advisers who understand the danger here. People like financier Wilbur Ross, a contender for commerce secretary, will certainly remind the new president that growing the economy, not succumbing to protectionist impulses, is the surest path to re-election.
Trump’s economic gurus David Malpass, Larry Kudlow, Stephen Moore and Steve Mnuchin (his possible treasury secretary) understand the need for tax cuts without breaking the bank; Trump during the campaign backed off his plan for even deeper reductions in individual tax rates out of concern for an exploding federal deficit in his first years in office.
Likewise, these same sober-minded people should quickly and without hesitation put the brakes on Trump’s call for billions in infrastructure spending that will certainly lead to higher deficits without much economic benefit to show for them.
We all know the real estate mogul in Trump likes to build things, and sure, we all want better roads and bridges and people working to build them. But when was the last time such amorphous spending plans led to sustained economic growth and dramatically better roads and bridges? Not when President Obama tried his so-called “shovel ready” stimulus plan in 2009 or even when President George W. Bush tried a smaller version just prior.
Trump should remember that what the markets give, they can easily take away. If the markets sense significantly higher deficits without much growth, interest rates will spike, and money will flow out of stocks and into bonds, crushing the current rally as traders sense a slowing economy and a need to raise taxes to pay down the deficit.
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