Trump’s Best Week of the Year; Democrats’ Worst Week of the Year
Author: Greg Valliere
July 1, 2019
A WEEK IS A LIFETIME IN POLITICS, as British PM Harold Wilson famously declared, and that certainly looks true after Donald Trump’s stunning trip to Asia and the Democrats’ pandering and brawling in Miami. The message seems clear: you underestimate Trump at your own peril.
YES, THE TRUMP TRIP WAS MORE STYLE THAN SUBSTANCE, but the trade talks will resume — a major plus for the markets — and tensions on the Korean Peninsula have eased. Trump’s personal style of negotiating has legions of detractors, but he keeps piling up political victories: tax cuts, regulatory reform, the transformation of the U.S. judiciary, etc.
THE HARSH REALITY is that the China trade talks will be a very long slog, lasting for months, with only modest chances of success (an excellent article in this morning’s Wall Street Journal detailed the obstacles, as Chinese Communist officials balk at major reform). And likewise, it’s unclear what the end game is with North Korea; the elimination of Kim’s nuclear weapons is not imminent.
BUT TRUMP HAS TEMPORARILY DEFUSED TWO MAJOR CRISES and is riding high as his July 4 extravaganza approaches — and as Democrats fight among themselves. A backlash against the Kamala Harris ambush of Joe Biden is growing among party veterans, but the damage has been done — Harris has moved higher in the polls and Biden looks shaky as his fundraising slumps.
THE BIGGER PROBLEM FOR DEMOCRATS is a growing perception that they’re eager to pander to every interest group imaginable. As we wrote here last Thursday and Friday, Trump must be smacking his lips — the Democrats want huge new government programs, higher taxes, more regulation, federal aid for illegal immigrants and, perhaps most damaging, their dystopian view of the country seems wildly exaggerated, as the unemployment rate sits at 3.6%. “What planet are they from?” Larry Kudlow asked yesterday.
THIS DOESN’T MEAN TRUMP IS HOME FREE: He’s good for a self-inflicted wound every week; he coddles dictators and seems way out of touch on issues like climate change. And the liberal House, while not likely to impeach, will focus on Trump’s taxes and finances, a rich target that worries Trump insiders. But any discussion of Trump’s vulnerability has to be countered with this reality: the Democrats are a mess right now.
* * * * *
WHAT DOES THE TRUMP TRIP MEAN FOR THE MARKETS? We assume the overseas stock rally will extend to the U.S. today, as the second half begins on an upbeat note — no new tariffs with negotiations back on track. The euphoria could fade as analysts focus on the obstacles to a deal, but it doesn’t appear that the amazing economic recovery — now in its tenth year — will end soon; a recession still isn’t imminent.
SINCE THE MARKETS UNANIMOUSLY ARE COUNTING ON a 25 basis point rate cut later this month, the Fed seems unlikely to disappoint (even if this Friday’s jobs report is strong). A 50 basis point cut is increasingly unlikely — and beyond that, we think there’s a risk that the markets have priced in way too much Fed easing over the next several months. More rate cuts when the stock market is at record highs? How odd . . .
THE AGGRESSIVE EASING SCENARIO is premised on a belief that the tariff wars will persist, but for how long? Our guess is that Trump is in no hurry for a final pact, because failure to win a quick deal will get him at least 50 basis points of easing between now and winter. Then — with rates at rock-bottom — he will cut his deal with China, boosting U.S. economic prospects as the election campaign heats up.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2020 AGF Management Limited. All rights reserved.