What If Trump’s Policies Actually Lead To A Market Crash?

From Brad Hoppmann: Someone asked me the other day what I thought a good literary title would be to describe what the market’s doing right now, and what it will likely do in 2017.

Without hesitation, I responded with the Dickens classic, “Great Expectations.”

Why?

Well, because since the election of Donald Trump as the 45th president, the market has gone nearly straight up. That move has come purely on the great expectations that the president-elect will be able to implement his pro-growth, lower-tax, lower-regulation, fiscal-stimulus plans.

No doubt Wall Street has looked upon these developments as a welcome change to the current status quo out of Washington.

But what happens if all the promises of a “Trump bull market” fail to live up to those great expectations?

What happens if the Trump agenda gets bogged down in the Washington “swamp”?

These are questions facing investors as we approach Inauguration Day. And asking them now is a good way to prepare for the new year.

Given how far the market has run since Nov. 8 (about 5.2% on the S&P 500 and 8.2% on the Dow) …

Any wobble at all to start off the new administration could generate what might be called a “buy the president-elect, sell the president” trader reaction.

I’m not saying this will happen. But I am saying that these great expectations took us from where we were on Nov. 8 to where we are on Dec. 28.

For this market to keep doing what it’s done over the past seven weeks, we’re going to need to see real evidence of economic improvement. Plus, real progress on issues like infrastructure spending and regulatory rollbacks.

We’re also going to have to see some actual plans from the Trump administration on things such as corporate and even individual tax reform.

I suspect corporate tax reform will come first. But really nobody knows quite what the president-elect has in store. Even he might not yet know which policy proposals he’ll choose to unveil first.

For the year, the S&P 500 is up 10% (up 5.2% since Nov. 8), and the Dow Industrials are up 13.8% (up 8.2% since Nov. 8).

All we can do is go by what members of the Trump transition team have said so far. And chief among those transition team members is Vice President-elect Mike Pence.

Pence has come out on record as saying that the administration would likely tackle issues such as illegal immigration, Obamacare, appointing a Supreme Court justice and strengthening the military … all within the first 100-200 days.

Those issues may be what the administration wants, but they’re aren’t necessarily what Wall Street wants.

Pence has also said that, sometime in the spring, the administration would begin to focus on tax reform.

That tells me that any economic boost from an actual lowering of corporate taxes won’t happen until the back half of 2017.

I think the longer it takes to implement tax cuts, the more antsy markets are going to get … and the more those great expectations for a Trump-inspired bull market in 2017 will begin to fade.

Of course, all of this is conjecture at this point. We will see how things play out when the proverbial “rubber meets the road” after Inauguration Day on Jan. 20.

What we can say for certain is that … unless the current great expectations of a continued Trump boom are met … the bulls could be in for a slippery road ahead in 2017.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was unchanged in premarket trading Thursday. Year-to-date, the only ETF tied to the DJIA has gained 15.79%.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 76 ETFs in the Large Cap Value ETFs category.

This article is brought to you courtesy of Uncommon Wisdom Daily.

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