President Trump has now been in office for just over six months. Needless to say, it’s been a whirlwind start to his first term. While the current administration may be unorthodox, its ability to affect the markets hasn’t changed. That’s why it’s worth analysing President Trump’s first six months.
Let’s Get Some Context
Before we look at the first six months of 2017, let’s remind ourselves why Trump won the election.
During the campaign, Trump managed to connect with rust-belt voters that felt forgotten. The promise of job creation for states such as Ohio and Michigan clearly resonated. But Trump’s ‘America First’ agenda also appealed to big businesses and investors.
His pro-business platform is simple. Trump wants to make it super easy for businesses to operate within the US. Firstly, Trump wants to slash domestic corporate taxes (from 35% to 15%). Secondly, he wants to cut unnecessary regulation.
On top of this, Trump promised to embark on a $1 trillion infrastructure programme. Clearly, such a move would boost business growth and job creation.
Investors were excited about this agenda after the election. This was demonstrated in the days after November 8th. Investors participated in a $1 trillion selloff of global bonds, shifting their capital to private equities. Why did this happen? Investors believed Trump would enact an inflationary and pro-business agenda.
Six months after inauguration day, we’ve seen the Trump administration face staunch opposition from the Democrats and some Republicans. This has delayed legislative progress.
Considering his unorthodox approach to politics, Trump was always going to face staunch opposition from the Democrats. Plus, many of his proposed policies would reverse many of Obama’s keystone achievements. Put simply – his policies are bold and controversial.
As a result, the Trump administration has found it difficult to pass legislation through the House and Senate.
An example of this is health care provision. One of Trump’s key campaign pledges was to repeal and replace the Affordable Care Act (also known as Obamacare). However, Trump has found it difficult to coordinate a replacement plan that appeals to all wings of his Republican Party. At the time of writing, Republicans have yet to form a comprehensive plan that satisfies their senators.
The protracted nature of legislating major reform has had knock-on effects. Legislating tax reform is next on the agenda for Trump. But this has been delayed because of the difficulties with health care reform.
One thing is for certain – President Trump will continue to face blanket opposition from the Democrats. It remains to be seen whether he can unite Republicans around his ‘America First’ agenda. While health care has proven to be a divisive issue, my belief is that tax reform will find consensus.
A major distraction for The White House during Trump’s first six months has been the Russia investigations.
If you’re unfamiliar with this issue, the Trump campaign is facing allegations of collusion with the Russian government in order to influence the election in favour of Trump. There is currently an FBI investigation into this. The appointment of a special prosecutor to investigate whether those allegations are true is also noteworthy.
At this moment in time, it’s unclear where these investigations will lead. However, traders must remember that government instability can affect the markets. This story has echoes of Watergate. But my feeling is it will not result in Trump prematurely leaving office.
Yet this is a situation to watch very closely.
Outlook Going Forward
Some investors are questioning whether Trump will be able to implement some of his bolder pro-business plans. A weakening in the dollar has demonstrated this anxiousness, especially through Q2 of 2017.
I still believe that Trump will implement pro-business policies that will spark economic growth, supporting the US dollar over the long-term. I think there’s a chance that the electorate could strengthen the Republican Party’s presence in Congress and the Senate in the 2018 mid-term elections. This would make it easier for Trump to get bills passed.
The US economy also remains resolute with strong job creation and high business confidence.
Future Moves From The Fed
We need to remember that The Fed is in the middle of a hiking a cycle – another reminder of the US economy’s health. We’ve had two interest hikes since December 2016 – the markets expect two more in 2017.
However, there is a caveat to this. Janet Yellen, the Federal Reserve chair, recently stated that the central bank was open to adjusting its monetary policy should inflation continue to undershoot its 2% target. You can watch the video below for more information.
I think there’s a chance that the Federal Reserve could slow its hiking cycle. But I certainly expect two further interest rate rises before mid-2018.
The USD will be highly volatile over the coming months and could even be prone to a complete reversal in direction should things not go to plan with inflation and the bank’s current hiking cycle. To help you, I will be posting about the state of the USD much more regularly to help keep you tuned into what I’m thinking and how I’m trading it over the coming months.
Analysing President Trump’s First Six Months
I hope you’ve found this article useful. If you have any questions, please leave them in the comments below. I’ll do my best to reply to as many as I can.