The Strategist

Trump's promises inspirit S&P 500 companies

01/23/2017 - 13:02

Leaders of several American companies included in S&P 500 Index expressed optimism over US president Donald Trump’s promises. In particular, they hope that tax cuts, increased spending and deregulation would contribute to higher corporate profits.

Gage Skidmore
Gage Skidmore
A few days before Friday's inauguration, Heads of Morgan Stanley, Delta Air Lines and other major US corporations said that plans of Trump's administration have already given rise to more favorable business forecasts, according to Reuters.

"With the advent of 2017, of course, there are more grounds for optimism than at the beginning of 2016", - said on Tuesday Head of Morgan Stanley James Gorman, after his bank reported a double-increase in profits in the IV quarter. He pointed to factors such as growth of consumer confidence after elections on November 8, and tax cuts promised by Trump.

Last week, more than a dozen S&P 500 companies have submitted their quarterly reports, and signaled optimism about a possible tax cuts, increased spending on infrastructure and deregulation.

Since the November elections, S&P 500 soared by 6% to a record high, partly due to expectations of Trump’s policy customized to promote economic growth. Papers of banks led the rise since market participants are betting that new President will cancel a number of regulations adopted by his predecessor, Barack Obama. The biggest part of them was adopted after the 2008 financial crisis, and many investors consider the regulations superfluous. 

Trump’s first decrees concerned suspension of consideration of Obama team's laws related to regulation and creation of preconditions for abolition of the health insurance system, dubbed Obamacare.

Tax Policy Center, Tax Foundation, and Moody's Analytics estimate that trumponomics will return the federal budget deficit to at least 7% of GDP in the next ten years. Overwhelming majority of experts believe that fiscal stimulus would now be unnecessary, and economic growth is unlikely to increase from the current 2.1% due to structural constraints.

According to Reuters’ poll, 70% of economists believe that Trump’s protectionist policies carries a serious risk. At the same time, it is strengthening the dollar, which, in turn, provokes anticipation of these measures. This year, Philadelphia Fed’s President Harker expects a threefold rate increase and beginning of depletion of the central bank’s balance.