Just a few weeks ago, analysts inflated their forecasts on the expectations that President Trump would lead by sweeping away the corporate tax reform and, in general, by the snip on regulatory constraints and by new fiscal stimuli. After two weeks in office, however, Trump has focused mainly on trade and immigration, leading to a substantial re-examination by banking analysts closer to the concerns expressed before the presidential election about Trump's uncertain impact on markets and economic growth.
"After the elections - according to the note released by the economists of Goldman Sachs led by Alec Philips - there was a positive sentiment among investors, companies and consumers, which suggested that the likelihood of tax cuts and the implementation of simpler regulations was seen as higher than the possibility of restrictions on trade and immigration. At the moment, however, this perception seems to have reversed”. In the photo, the Bloomberg Politics chart updated with the regions at greatest political risk in red.
There are three key reasons for a more cautious tone.
1. Congress's difficulties in replacing Obamacare are symptomatic
The Republicans' uphill efforts to replace the Affordable Care Act may be the norm rather than the exception. For investors who expect the Republican-controlled congress to be able to push its tax reform and fiscal stimulus agenda, these difficulties may be disappointing. According to Philips, the tax boost promised by Trump, "if it comes, it will come in 2018".
2. The polarization of political parties
Trump's foreign policy choices have worsened the climate between Republicans and Democrats, making the possibility of cooperation between the parties even more complicated.
"While bipartisan cooperation still seemed possible on some topics in the aftermath of the elections, the political climate today appears to be more polarized than ever, suggesting that many topics that would require bipartisan support could face new hurdles," writes Philips.
3. There is a real possibility of a market breakdown
Trump's choice to focus on immigration and trade could prove more than harmful for Wall Street and Corporate America. Indeed, it could be destructive. "Some of the Trump administration's recent actions serve to remind us that the president is likely to follow through on his promises on such matters, some of which could be destructive to financial markets and the real economy."
