History has shown us that political climates can have a significant impact on economic viability and growth. This has ringed true for decades, and today is no different. Take a look at the current state of the stock market, and it appears to read that the Trump agenda is dead. But be careful when judging a book by its cover.
If we look only at the numbers currently coming out of Wall Street and extrapolate them as a measure of the efficacy of the Trump administration, it’s a grim tale. The Cliffs Notes version: No matter how hard they try, our politicians can’t get anything done. In the wake of the continued failure to achieve health care reform, this might seem an accurate assessment. But dig a little deeper, and we see the story is much more complex.
What the numbers alone tell us is that the same sectors that were the leaders of the “Trump Trade” last fall have completely lost steam. It’s as if the market is signaling that the heyday for the Trump administration has come and gone.
Imagine though for a minute, if markets end up being wrong. Meaning, that if after the complete failure to implement healthcare reform, Congress does find a way to work together and does end up generating significant tax reform. Right now markets don’t expect this to happen, but if they’re wrong, and something does get done, the market’s surprise may mean further gains for 2017.
How Market Sectors Have Performed Since President Trump Took Office
However, for now, market sector performance still points toward the inability for congress to come to terms on anything of economic significance. Consider how a handful of sectors have performed since President Trump took office. Financials, telecommunication, and energy started out strong when our new Commander in Chief was elected in November of 2016. Looking at the chart below, the numbers show that in 2016 financials were up 17%, telecommunications were up 12%, and energy was up 9%. With this healthy growth, they were among the frontrunners among the eleven S&P 500 sectors.
Fast-forward to the first half of 2017, and these same sectors have lagged far behind. Despite the S&P 500 up nearly 10% financials clocked in at a mere 6.5% growth, while telecommunications fell to -7% and energy to -13%. Once ranking as second best out of the eleven sectors, telecommunications is now next to last. The worst sector for the first half of 2017? Energy. Dead last of the eleven S&P 500 sectors after finishing in the top 3 during 2016’s Trump trade.
So markets as a whole, measured by the S&P 500 rallied the first half of 2017, yet the Trump sectors have registered some of the worst performance. My take – this may be a misleading indicator that “nothing will get done” in Washington and that the prospect for Tax reform is dead. If we don’t read between the lines, we’re making a mistake.
The Trump Tax Reform Book Tour
We can all agree that the administration’s attempt to reform health care bombed. But even legislators learn from their mistakes. On the horizon is a veritable “Trump Tax Reform Book Tour.” Sources in Washington have noted that a tremendous amount of work is being done right now on tax reform. And this time, instead of flailing on the marketing and selling side of things, the administration is poised to bring a public relations tsunami.
Why? Because our leaders know they did a poor job of selling the American public on the new health care proposal. In business terms, they employed a poor public relations strategy, if there was a strategy at all. My guess is that legislators themselves didn’t really have a clear cut, workable answer to the problem. It was like trying to sell a new book with a bad title. It just doesn’t work.
But their new book is a much easier sell. The title is a simple one that every American can relate to: “Lower Taxes.” If it had a subtitle, it would read “How To Put More Money Into Everyone’s Pocket And Grow Everything Under The Economic Sun.” And you know what? That’s a book bound for the bestseller list.
Our politicians are also doing a much better job at garnering a ground swell on this go-round. A few months ago, the administration released the perfect teaser. Remember it? It was basically a one-page synopsis – simple, easy to understand, and skeletal enough for people to fill in the best parts for themselves. And when I say “people,” I mean it appealed to everyone.
American families love the prospect of a 1% to 3% lower tax bill. CEO’s love the promise of lower corporate tax and the repatriation of foreign cash holiday. Business owners love the idea of adopting the lower business tax schedule on their personal business income. In this new release, there’s a chapter that appeals to everyone.
Meanwhile, Paul Ryan and company have been drafting the finer details, and this time, the White House is poised to launch a solid public relations campaign to promote the reform. This new commitment to selling the American public on the benefits of tax reform include President Trump hosting rallies in his favorite states. The White House is also lining up CEO’s to present at town hall meetings on the topic. Lobbying groups like Heritage and The Business Roundtable are making similar efforts. The kickoff tax reform tour will likely start in August, so stay tuned. If you’re like me, you’re looking forward to it.
If this new and improved approach to getting folks behind reform works, if the new book tops the charts like I think it will, we could very well see a resumption in the “Trump Trade.” This could mean we finally break through today’s stale sub 2% economic growth. Traveling 39 MPH on the highway of economic growth (vs. 60 MPH like we are used to) has made folks complacent at best, and pessimistic at worst. And not just with the U.S. economy, but with Washington.
Our economy needs a new success on economic policy. We need a tax reform bestseller. If all goes as planned, the moral of this new story would be, “Hey, if Trump can do tax reform, he can do anything.” One thing is for sure, it’s a book tour I don’t want to miss.