President Donald TrumpDonald TrumpCheney says a lot of GOP lawmakers have privately encouraged her fight against Trump Republicans criticizing Afghan refugees face risks DeVos says 'principles have been overtaken by personalities' in GOP MORE has ambitious goals for his first 100 days in office, which include pursuing an action plan that focuses on cleaning up Washington, protecting American workers, and restoring the “rule of law.”
For investors, it’s worth examining how much headway he could make turning his “contract with the American voter” into reality and what that would mean for markets.
Republican control of Congress and the White House will likely end some of the gridlock that has plagued former President Obama’s second term. However, the path to 100 days is not paved in gold. It is not a sure bet that Trump will be able to turn campaign promises into policy. Questions remain as to how issues such as healthcare, budget deadlines, and global trade will affect markets and investor sentiment.
Healthcare and industry stocks
Republicans are already working to repeal the Affordable Care Act, also known as ObamaCare, but the GOP’s zeal for repeal may be toned down by a lack of consensus on when and how to replace the law, which has insured roughly 20 million Americans.
Initial legislation is unlikely to completely undo the law. Republicans are expected to pass a shell budget that would roll back program funding over time. Some have indicated a two-year to three-year rollback period. While this process allows lawmakers to avoid the 60-vote Senate threshold under a simple majority, they will need the 60 votes to enact any new healthcare provisions—a difficult proposition that would require them to swing Democratic votes their way.
Investors should be aware that as these proceedings occur, it may generate headline volatility for healthcare stocks, even as industry firms are increasing earnings and have attractive valuations relative to the rest of the market.
Budget and market rally
Trump’s dealmaking prowess will be tested, as two spending deadlines loom large. The first, March 16, is the deadline to raise the debt ceiling. Trump’s pick for director of the Office of Management and Budget, Mick Mulvaney, is a founder of the House Freedom Caucus, which tends to prolong the budget process by demanding that spending cuts accompany raises in the debt ceiling.
The second deadline is a government-funding bill that must be passed by April 28 to avoid a shutdown. When the government shutdown for 16 days in October 2013, researchers found it reduced annualized fourth-quarter 2013 gross domestic product (GDP) growth by at least 0.6 percent.
The markets will pay close attention to these dates. While the deadlines may be met more handily than in recent years, they are important because they will offer the first glimpse into the structure and size of the spending proposal that drove the post-election stock market rally. If gridlock does ensue, the rally we have witnessed may have a harder time finding its next leg.
Trade and currencies
On the campaign trail, Trump was vocal about protecting American workers by placing restrictions on global trading partners and potentially labeling China as a currency manipulator. Even before he was been sworn in as president, Trump made his presence felt by putting pressure on Carrier Corporation to keep jobs in the United States and being a vocal opponent of car manufacturers moving plants to Mexico.
The ramifications of Trump’s protectionist stance have been broadly felt in the markets. The Mexican peso continued its descent post-election, and China may have been forced to expel more foreign reserves to prop up the value of the yuan versus the U.S. dollar to avoid claims that its currency is too weak. Emerging markets, which are very export driven, may be the most vulnerable to any protectionist actions.
Where does this leave investors?
Overall, I don’t expect the first 100 days of the Trump administration to be filled with sweeping policy changes. Rather, Trump’s early days will allow investors to gain insight on how the Republican Party will govern and to glean details of policy platforms on which Trump campaigned but never provided specifics.
With that, investors should expect the unexpected and remember that stock prices are ultimately driven by fundamentals and underlying cash flows. Investors may be best served by these tried and true methods: portfolio diversification, fundamental analysis and a bit of patience.
Michael Arone, CFA, is chief investment strategist and a managing director for the U.S. intermediary business group at State Street Global Advisors.
The views of contributors are their own and are not the views of The Hill.