Business Rundown: Pricing In A Trump Economy
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I'm Taylor Riggs, and this is the Fox Business Rundown. ♪

Americans are just starting to grasp the market implications of a second Trump term. This is as investors continue to trade on President-elect's recent victory. We'll get a burst of economic activity coming out of it. And I think the market is reacting to the relief rally in general that the uncertainty has been resolved. But then within the market, that's where I think it is more a matter of who won. That's what matters.

In an election where about 40% of voters said the economy was their top issue, the re-election of President-elect Trump has ushered in an era of optimism about the direction the economy could be heading.

The University of Michigan's Consumer Sentiment Index showed that this month, Americans are the most optimistic about the economy since 2021. But under the next Trump administration, the president-elect has vowed to do a few things differently than the current White House.

Running on a platform of tax cuts, deregulation, and what he calls America First trade and tariff plans, investors have begun to add to their portfolios based on the policies that Trump has promised on the campaign trail. The stock market frenzy following the election results has only been bolstered by the Federal Reserve's decision on Thursday to also cut interest rates by a quarter of 1%.

So how should Americans be reading the market landscape under Trump 2.0, both in the short term and the long term? Yeah, I think it was really a relief rally. Whether you like the outcome or not, we at least have the certainty about who will be president. It also does look like we have a lot of certainty around the Senate. We still have to wait as far as what's going to happen to the House.

Brian Jacobson is chief economist at Annex Wealth Management, and he joins me now. But I think it's a lot of anxiety going into the election about we just want to wait to see what happens. We are hearing that from business contacts and consumers that, you know, if you think about some of the earnings announcements that came out before the election, they were commenting about how consumers were just postponing business.

big ticket item purchases until they got through the election. You know, it's so funny. I heard that from Delta. On the Delta Airlines conference call, they said no one wants to travel around election week, but it doesn't mean the consumer is bad. They just don't want to travel around the election. That was fascinating to me. I agree because I'm not sure why the election would affect whether or not you want to go to Disney World or something like that. And we also heard that

from Whirlpool, which I thought was interesting about some of the bigger ticket item purchases there that they thought people were just waiting until you got through the election. And then maybe we'll get a burst of economic activity coming out of it. And I think the market is reacting to the relief rally in general that the uncertainty has been resolved. But then within the market, that's where I think it is more a matter of

Who won? That's what matters. So let's talk about that. A lot of this Wednesday, Thursday, and this morning to me looked like 2016 2.0. Similar story in terms of the Russell 2000. Those are small cap, domestically focused American stocks that do well when you have a strong economy. Bitcoin, higher yields, banks are higher.

I'm trying to think, you know, pretty much everything is a repeat. Do you sort of look at 2016 and take cues from that to also sort of see how we play these markets today? A little bit. But I think that we can't just assume that it's going to play out the same way. The setup changes.

is very different. So in 2016, the Federal Reserve, Chair Yellen, she was in charge and they had already hiked rates once back in 2015, and then they were going to do it again in December of 2016. So we knew then that the Fed was going to start hiking rates, whereas now the Fed is cutting rates. So that setup

is a little bit different. And then I think it's also a matter of the focus of the president, where in his first term, so Trump 45, he started with an emphasis from a policy perspective on tax cuts.

Then as things went on and he got that victory, it shifted more towards the trade war. So we have to kind of break it up into in 2016 through 2020, you basically had the tax cuts, Trump, the trade war, Trump, and then the truce, Trump, because they did negotiate a truce with China over the trade war. Now it might be a little different.

because we are not likely to see the same focus on the tax cuts. I do think that they need to extend the Tax Cuts and Jobs Act because that is scheduled to sunset at the end of 2025. But that's not the same radical change that we saw in 2017, so the first time around.

So maybe it's going to shift almost immediately into trade war Trump as opposed to tax Trump. And the market behaved very differently. Can we talk about trade war Trump? I saw a little bit of that this week. Massive dollar strength, right? So you think about a strong dollar relative to a weaker China currency, a weaker...

Mexican peso, which is their currency. Nike shares were falling because they have exposure to China, right? They make a lot of those manufactured goods overseas, which may or may not be subject to tariffs. So how should we be thinking about

looking in this market if I'm an investor and I'm interested in making money about what a trade focused Trump would do and how does that make me determine my winners and my losers?

Yeah, I think that really what it means is you have to try to game out whether or not he is serious about implementing the tariff almost regardless, or if it is a negotiating tool. And my belief is that it's more of a negotiating tool that maybe we will see some of them. If it's a negotiating tool, it's one of those things where you can see volatility, but it's something you can just ride through. I don't think it's anything that would require any sort of radical

reorientation of a portfolio. So, you know, that's my belief, but I could be wrong about that, of course. But if we look back as to what happened during the

the trade war that really, I would say, you can look at the calendar year 2018 and then up until the truce of around October 2019. We saw a lot of volatility. The parts of the market that held up best during the trade war were areas like the small cap, more domestically focused companies. Those are the roughly 2000-ish, right? If you're playing like an ETF or a broad based index. Yeah.

Exactly. Yep. So those are more domestically focused. But as time went on, people realized that even those domestically focused companies, that their supply chains, it might have been a very circuitous route. They still depended upon trade with other countries. So while they were relatively more insulated, they weren't completely isolated from the trade war. And so we saw the market

selling off going into 2019 as manufacturing activity was declining. And eventually we did get that resolution, that truce, and then it was another relief rally coming out of that. So I think that maybe the playbook here is anticipate that trade war is going to or trade war Trump is probably going to come out first and that you should brace for that type of volatility.

But anticipate that there will be the resolution so you can ride through it and then position for the resolution and not necessarily position for the tension. You know, what really stands out to me is the rate at which companies are already responding. I think in 2016, a lot of companies were caught off guard.

Steve Madden is a company already this morning, the day after Trump got elected. He said Wednesday morning, we've implemented our policy. We're already pulling back on manufacturing in China. After COVID, do you have companies now that are a little more nimble and

In terms of being able to anticipate what Trump will do, wanting to get ahead of that, not be caught on the wrong side of him and say, great, we're just going to be producing more out of our plants in Vietnam. Or maybe we're going to be looking back at American manufacturing. Are companies able to respond a little bit more quickly this time around?

I think that's absolutely correct. I think that they already saw the trade war once. They also saw the dangers of having a business model that was heavily dependent on trade with China as part of their supply chain. They realized that either they needed to move the supply chains to a friendlier environment or diversify the supply chains where they don't just have a single supplier. Now, in some areas, that's impossible to do.

you know i've read some research around that there's like you know silica gel that's something where there's only one source maybe some of the rare earth materials there are certain things that maybe you can only get from there and so they from a almost idiosyncratic or specific business risk

Right. You can't really avoid it. But in the context of a portfolio, I do believe that American businesses have already diversified out of China mostly. And so the impact of a trade war with China might be mostly felt by China and not necessarily so much by U.S. consumers and businesses. Well said. And I think our U.S. consumer base here likes to hear that. Right. That makes them feel good that policy is on that right track.

I am desperate to get your thoughts on this next question. We've talked a lot about inflation versus deflation. We have seen on average in the last four years, cumulative prices, not year over year, prices on average are up about 20%.

Every consumer I talk to doesn't care about the rate of inflation slowing. They are asking me, when is the price of my eggs going to go back down to what it was in 2019? Not when is the price of eggs going to go from $3.50 to $3.75 instead of $3.50 to $4, right? So my question to you is,

Can we ever get back there? Which to me, I think means we start to see deflation price down instead of inflation prices go up. Can you do that? And can you do that without a recession?

I think you can. I mean, we did have real volatility, ups and downs of prices, even during low inflation periods. So if you kind of peel back all the items that go into the consumer price index,

Some go up, some go down, and that's normal. And we could see and we have seen like durable goods, some of those prices actually declining. So if you look at used car prices, new car prices, some of those have come down. We can see it sometimes as far as with energy prices. So gasoline, those prices can come down. They can also go back up. With eggs, those are very high.

I mean, that's something that I think that you get more supply coming on so that you get that type of response.

And that could push prices lower. So you could see eggs and bacon, those prices go back lower, even if overall inflation is still positive, right? So it's about more, you get these price dispersions where service prices, which is the bulk of what goes into the consumer price index, that could be keeping things kind of elevated. So insurance prices, those

Those probably, unfortunately, aren't going to go down. You might see continued inflation there, education costs, travel costs. Those are more services, but the goods prices could go back to deflation. And in fact, I believe because of capitalism, the innovation, the way in which businesses compete for

for the wallet share of consumers, there is that tendency for goods prices to actually decline over the long term, not to constantly increase. And frankly, I think consumers would be happy with that. You know, as long as I'm seeing some of the costs of the grocery store go down, if airfares don't go down, maybe that's less important to me. If I'm on a very strict budget, I need the necessities to go down. So maybe it's that sort of goods prices that really matter to me as a voter.

sending the mandate to Congress and the executive branch saying, hey, get your acting gear and fight for me. Final topic, AI, investing in America, capitalism, pro-growth, pro-business. To me, that clearly was the big mandate that we got this week. I want an executive and a congressional branch that believes in American business, not a tax American business.

Yep. Can technology and maybe without Lena Kahn that remains to be seen the woman who's at the FTC been fighting big tech. Is this that era of back to where these big companies can invest in their employees invest in themselves invest in AI invest in chips. How do you think about big tech.

- Yeah, we actually do like big tech. And I know that in some periods of time, it's sometimes viewed that big tech is more like a Democrat trade as opposed to Republican trade. I think about it more in terms of who's creating the environment for innovation and which industry are you seeing that in? And I think that you get some leadership change at the Federal Trade Commission perhaps, as far as their antitrust enforcement, and it would allow big tech businesses to make the big investments that are necessary

to innovate there. When we were listening to the earnings call from Palantir, the CEO there, then pointing out, if you think about the American businesses, just the high return on equity, the way in which they make the investment, they can get the return, return the cash to shareholders, or you get this what's called the flywheel, where then they can make even more investment and you get more innovation, more productivity gains.

And so I think that really you get that deregulatory push from this administration and it'll be pretty incredible to see what the state of technology is like four years from now versus where we are today. And I think our viewers will be so happy that I didn't force you to talk to me about the debt and the deficit. We'll save that topic for another time. Brian, really great to have you on the program. Thank you so much. Thank you. I really appreciate it.

Hi, everybody. It's Brian Kilmeade. I want you to join me weekdays at 9 a.m. East as we break down the biggest stories of the day with some of the biggest newsmakers and, of course, what you think. Listen live or get the podcast now at BrianKilmeadeShow.com.