The Investment Implications of the Republican Sweep
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Hello, and welcome to notes in the week ahead, a japan Morgan asset management podcast that provides insights on the mark acy the economy to help you stay informed in the week ahead.

Hello, this is David Kelly. I'm SHE strategy here, a jp organised management. Today's in november of twenty twenty four, the most urgent task case ing investors in the wake of the twenty twenty four elections is fake.

How much of the trump agenda as broadly outlined on the campaign trail, would actually be pulling into effect a full and literal implementation across taxes? Trade in immigration could have unwelcomed consequent to the economy, both the short and long run. A more partial implementation, which seemed to be anticipated by financial markets last week, could add to be more positive for stalks and negative for treasuries.

In the short run, however, even this more restrained policy path would like a result in sharply rise a government debt and the potential in some areas for building economic market risks. For this reason, and because of the further run up in the U. S. Equity market in the wake of the election, investors will be well advised to can continue to rebels portfolios both across asset classes and around the world.

And express conference .

this week, jay parliament clear that the fed was not got a prejudge. Any policies that might be implemented on the outline in detail and on the way to being enacted. In his words, we don't guess, we don't speculate and we don't assume unfortunate investors don't really have the luxury of waiting that long.

So I have to make some base case judgment ments and what will will not be implemented. An assessment of probable federal government policy at least over the next two years should start with the election results themselves. In the end, despite very close polls going into the election, IT was a size of republican sweep.

The trump t easily one of the electoral college of the popular vote. And while counting is continuing in a few areas, IT appears that republicans will end up with the fifty three to forty seven majors in and a roughly two thousand twenty two to two thousand thirteen majority in the house representatives with the White house at a comfortable majority in both heads of congress. And I eve assessment might be that the president that would simply do everything he said he would do on the campaign trail.

However, this seems unlikely. A newly elected president, triple of less costal motivation to implement many of his campaign promises since he cannot run for office again. By contrast, those who have a year, including big donors to his campaign, some foreign leaders and republican members of congress, will be very motivated to further their interests scene from this prospect of a good question to ask on any agents item is how much you might further the interests of interested parties.

One critical issue for markets and the economy going to twenty twenty five, will we have the administration approaches extending those tax cuts from the three, seventeen tax cuts and jobs across T, C, G, A, A? They were set to expire the end of next year. A little will likely went its way through congress over the course of twenty twenty five. Could take the answer to this question.

IT is reasonable to assume the current rates on individual corporation of taxes and on this data, x will now all be extended, including continuation of annual flag indexing of exemptions and tax back threshold president that trump s has made IT clear that any tax bill would allow the cap on sol productions, which fn, a small part of the twenty seventeen tax cut, took spy on schedule the end of this year, add in to the cost of the bill, although benefiting more affluent hookers. In addition to this, president elect promised a further cut of the corporate income tax rate from twenty one percent to fifteen percent for a domestic production. Such attack would obviously boost the after tax earnings of public and private held CoOperations, and they can be expected to love hard to achieve both the cousin of very broad definition domestic production.

In addition, business interests will argue that the present should follow through on his promise of a renewal and full of full expanding for investments in equipment in R, N, D, again for a domestic production. Some of the other campaign commitments will be harder, implement the promises to eliminate taxes on tip income, and over time would be extremely expensive, even if they didn't change the behavior of management and workers. However, inevitably, both would game the system, laying me that more worker income wasn't vat tips, or over time, further boozy the cost.

Because of this, a republican .

congress might be tempted to leave these items out of a road tax bill. That being said, democrat in congress, I tried to have the back in and which truly highlights republican tempts to admit them if they occur in future election campaigns. Consequently, despite their cost, a reasonable based on forecasts says they will be included, although perhaps water dad.

to some extent, the proposals to allow .

for the deductables of interest and other loans, the elimination of taxation and social security are more straight forward from a definitional perspective, and so also might make their way to the tax bill. All told, the overall costs tax bill will be enormous and reckless in the context of a long term dead outlook. However, the interest of infested parties will tend to push IT up.

The problem is of how everyone may decry the long term trajectory the federal finance is each interest group will have a heavy incentive to get dir particular tax break, and reuters have made IT clear that they will not punish the physically reckless or award the physically prudent. There at least three possible areas in which the new administration, congress might attempt to pay for these. So the cost, these tax cuts, first, presidents like trump is proposed having elon must cut and effort to cut government spending.

However, a trumpy recognized social security, medicare, medicated, veteran affairs, defense interest papers off the table. It's actually very little left of the federal budget to cut. Moreover, almost every area of federal spending has powerful defenders among republic ican, as well as the democratic s centers, and has members.

A second president at trump t is likely to cut a aid to ukraine and possibly tonio. However, while this may result in some savings, there will again be powerful advocates of military spending among republican congress who have military bases or argument production facilities in their districts, and president electrons is also to increase true pay and advising advance military technology. Third, president trump s said that revenue from terrace would fund to tax cuts. The prom with this is that higher terrorists bite, inviting retaliatory trips s slow the economy, reducing revenues from other, other areas of income taxation. So in short, the tax bill, it's likely to amount a significant fiscal steam as the other deficits with no major revenue spending offsets.

According the committee for a responsible federal budget, a full implementation, president electron's proposals could boost the dead to a GDP rauh det GDP ratio from nineteen eight point two percent of G D P in fiscal twenty twenty four, two hundred and forty three percent of GDP by fiscal thirty five, depp said, because the way will likely be enacted through the once in a year budget reconciliation process, its provisions would likely not take effect until started to change to twenty six. In addition, as was the case with the twenty seventeen act, the train twenty five back will very likely include a sharp sunsetting of tax cuts within a ten year window in order to avoid a fillibuster. The senate .

rules and two areas with .

the policy bite might be less severe than the campaign. Bark our tariff. An immigration on terrorist president electrics said that he would impose a ten percent tariff goods imports from all countries in typhon goods from.

But IT seems to be actually attracted by the idea of terrace. The reason to believe that any actual implementation would be less severe. First, higher terriers will be passed on through to consumers in the four of higher Prices.

And this will be particularly unpopular with the U. S. Population, forming the inflation ency in earlier this decade. These Price increases could also boost onto interest strates, including more trades, and might cause the federal reserve to slow the easing.

Second, any higher tar of imposer in extra would be immediately met by retta terrorists from other countries, hurting U. S. Exporters and commodity producers.

Moreover, with this would occur before any fiscal stimulus, rive, from any tax will post twenty twenty five. I could slow the U. S. Economy, or even put into recession. This would not be easy situation for republican members of congress ahead of the train twenty six midterm elections a while, president trumps entity implemented his first term trade agenda without congressional approval. IT is very doubled that he could legally do so with the more expensive measures you proposals for a second term.

Third, business leaders have decidedly mixed views in terms as some would impose them in general on economic grounds, some would like to see them imposer on their competitors, and some would like to see carbs avoid putting tarifa on their own suppliers. In addition, the U. S, couldn't put new terrace and maxi in canada under terms of the U.

S, M, C, A agreement that needs to be renegotiated twenty twenty six. And the U. S, would likely have to engage in negotiations with many other countries in favouring some nations disfavoring others the interests of interested parties. I'd likely water down any new road of terrace, although even a water dead version could be harmful. In terms of inflation, economic growth and general business .

uncertainty on immigration.

president electrum mp has promised mass deportations, deep potations might well rise. However, business ideas will will continue to point out the necessity of having foreign labor available, given almost zero growth of the domestic working age population, is also a distinct possibility that the republican congress will take the opportunity to pass an immigration reform act, which, while tightening the rules at asylum, seeking U. S.

And shutting the southern borrow to new undocumented migrants, might find ways to keep current migrants working in the U. S. economy. Part of the reason for the world street rally following the election was undoubtedly the promise of less regulation.

IT may be that the trump administration delivers on this promise, reducing environmental health regulations, constraints of the housing, energy and tech industries, and regulation of the financial industry. All this would tend to boost corporate profits somewhat. However, investors should be a little careful what they wish for in this area.

Fewer environmental regulators would generally boost corporate profits. However, a lack of any U. S. Commitment of global warming would severely them with the world's ability to deal with this problem with potentially disastrous long term consequences.

A lack of financial regulation takers, when extreme, could eventually into a financial crisis, as IT did into the thousand eight. The severance iee has been caused by social media, particular for Young people, probably called for more regulation of the less. Moreover, while everyone has their own opinions on these issues, from my prospect of the proliferation of online gambling, crypto currency, seven automatic weapons and marijuana dispenses are negative rather than a positive for society.

Moreover, with deregulation, the benefit ies are generally a small group of interested parties who will be particular adept to getting their own way. While long term costs are born by societies a whole under these assumptions, in the short run, the economy may well well stay on a similar path to try twenty four. In the absence of any immediate social stimulus, mass deportations of tariff s, the economy could continue to see moderate growth, a low unemployment rate and inflation in the vw two percent long term interests will be hired due to the anticipation of fiscal syms 2 six。

However, the prospect of further deregulation and tax cuts might well support investment spending list stock market. However, in the long run, there is a great danger in the color run in the interest of interested parties. These groups with the ideological, political or simply commercial generally have an interest in the government imposing less regulation, lower taxes and higher spending.

Specific areas. In the long run, this can to generate even more unequal and the nation with less dynamic and a greater risk of bubbles. This may be where amErica headed. Mom may turn out to be too gloomy of view of the future.

However, with the S N, P, 5， the night selling is over twenty two times future earnings, with ten companies that accounting for thirty percent, twenty seven percent of a total stock market cap and with U. S. Equity is now accounting for sixty five percent of a global stockmarket.

The risk that the U. S. Will head down this path clearly justifies a more cautious and globe diversified approach.

Well, that's IT for this week. Please turn on again next week and have any questions. In the meantime, please reach out to James Morgan representative.