Shock or Awe?
Much of the world woke up Wednesday morning of last week and was shocked. But should it have been? Markets do not like surprises, so it was understandable that the overnight reaction as Tuesday’s election results came in was negative. However, the markets seemed to discount the surprise quickly, cutting through the noise and seeing some cause for optimism.
What caused the remarkable turnaround in sentiment? President-Elect Donald Trump’s measured acceptance speech helped. But perhaps the markets finally saw some of what Trump’s supporters had been seeing all along.
The Malaise Our Economy Is In
A lot of mainstream commentary describes Trump voters, as well as others such as “Brexiteers”, as unschooled at best, xenophobic at worst, or simply unaware of where their interests truly lie. But maybe last week’s result showed that these voters have a deeper understanding of the malaise that the world’s economies are in than the global “elites”.
There are forces, such as globalization and technology, that are changing our economy and there is very little politicians can do about that. However, the lack of any meaningful fiscal policies to help enhance global growth has been a frustration to many. In previous CIO Weekly Perspectives we have discussed why monetary policy alone cannot get us out of this slow-growth environment. Our current 1-2% growth rate is not going to drive stronger income growth and the increased economic mobility that people want and need.
The electorate seems to have figured this out and was willing to overlook the personal flaws of Donald Trump to support a different game plan. They seem to have concluded that the game plan Secretary Clinton was proposing was more of the same. We shall see—but so far the markets seem to support the voters’ instincts.
What’s Next?
My colleagues and I held a webinar early on Wednesday to discuss the election’s outcome. Most of our points are summarized here , but our simple message was that we believe the result should be good for equities and bad for bonds. The market’s reaction, at least so far, is consistent with that view.
Why? We think that an increase in fiscal spending, particularly related to infrastructure and corporate tax reform, is achievable, and could have support from both sides of the U.S. Congress. In addition, significant regulatory reform should help spur business to invest more and unleash the proverbial “animal instincts”. It’s worth noting that we are leaving behind an administration that had fewer staff with private-sector experience than any other in recent history. Medium-sized companies in the energy, utilities, healthcare and financial sectors could benefit a lot from being unshackled from some of the well-intentioned, but ultimately obstructive, regulation that has come their way over the past 10 years.
Keep An Eye on Anti-Trade Sentiment
One area to watch closely is trade. In our view much of Trump’s platform is pro-growth, with the exception of trade. Anti-trade sentiment, in the U.S. and other developed market economies, could have a very negative effect on global growth. Policies such as renegotiating NAFTA, fighting TPP or increasing auto tariffs could set off a domino effect across the globe. How these policies and agreements get worked out will be telling. An early indication will be who Trump appoints as the new U.S. Trade Representative.
But we would reiterate that, while Trump’s “Contract with the American People” certainly contains anti-trade policies, it is otherwise a recognizably Republican program for shrinking government, lowering corporate taxes, reducing regulation and limiting the lobbying power of big business, combined with a fiscal stimulus targeting infrastructure.
Sentiment shouldn’t swing from despair to euphoria too quickly, of course. Trump doesn’t have a magic wand to wave on January 20th. Even if it were clear what the President needed to do, infrastructure takes time to build, reform takes time to agree on, and, keep in mind, more than half of the people who voted last week did not support this administration. But at least now there is no doubt that the people see that our economy is in a malaise—and that is the first step towards providing a remedy.
Joseph V. Amato is President of Neuberger Berman Group LLC and Chief Investment Officer—Equities at Neuberger Berman. He is also a member of the firm’s Board of Directors and its Audit Committee. To learn more, see
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