5 Hazards to the Market that Could Come from D.C.
Ty J. Young Editorial
It is a shame that if one watches the media on a regular basis, you would think the Republic is in its last days. Thankfully, most Americans spend their days working for their family, taking care of their kids, going to ball games, and desperately trying to avoid the political war zone we see and hear each day.
There are serious roadblocks to the Trump agenda that come from Washington, and failure to follow through on any or all of these issues could result in a precipitous decline in the stock market. Here are 5 issues directly tied to D.C. that could derail the Trump Agenda, and reverse stock market gains:
5 Hazards to the Market that Could Come from D.C.:
1. Delay in Obamacare repeal. A delay in the Obamacare repeal is a significant issue. The exchanges are going bankrupt… many insurers continue to pull out… the predicted death spiral is here! Without a repeal, and a free market replacement, health care in the country could collapse. It is a continuing death spiral given that health care is 1/6th of the U.S. economy this will obviously impact stock markets. The Republican plan released Monday suggests a three-way battle on Capitol Hill between “Ryan Republicans”, Conservatives, and Democrats. It won’t be pretty.
2. Delay on tax and regulatory reform. The markets have been significantly buoyant thanks to the suggestion of comprehensive tax reform, much like the last major reform bill in 1986. Failure to deliver what has been a major component to the market’s upward movement since the election could have the same effect, but in reverse. Regulatory reform is critical as well, but does not require as much Congressional action and can be done through the Executive branch.
3. Republican defections lead to continued gridlock. Moderate Republicans and Republicans in swing districts could become greater targets of the media and their voters back home for continuing to support the Trump agenda. Failure to act soon and the media attacks on Trump could inflict a mortal wound, and eliminate any fear of the Oval Office. If that happens, Republican defections could lead to gridlock. Usually, the market likes gridlock, but not with the expectation of deregulation and tax reform baked into the current upward momentum.
4. Scandals become permanent. There are three pillars to the D.C. scandal machine: (A) the bureaucratic state – invested in larger and a more controlling government; (B) the Mainstream Media – tied to the Democratic party and invested in chaos and Trump failure; and, (C) Trump’s own behavior. The constant tweeting keeps issues alive that perhaps would not become a subject for media scrutiny. If moderate Republicans concede to a permanent state of scandal, or constant investigations over the same types of issues they did NOT fully investigate during the Obama era, then getting things done – which is already a challenge – could become nearly impossible.
5. Fed Rate Hikes. We have called for raising interest rates for years, and the two minor hikes we have seen recently are a drop-in-the-bucket of what is needed. The non-political Fed seemed highly politicized during the Obama era, as rates were kept at zero for over 7 years in an artificial effort to keep the economy above water during the Obama years. Now, , with a Trump election victory, the Fed suddenly decides we should aggressively raise rates and do so often??? Raising interest rates and strengthening the dollar is needed, and it could slow, or reverse, stock market gains. But we needed rate hikes over the last several years as well. Rate hikes would have normalized market pricing. The lack of rate hikes created market distortion. They will naturally slow market growth – and while absent for the last 8 years, the Fed is signaling they are ready to go into over-drive.
Risks to your investments usually come from competition in the marketplace, but the greater risk of government intervention has become commonplace since the banking collapse of 2008. While stocks have benefited for the last 8 years from government policies – zero interest rates, money printing – those benefits have come with a price – a less free market, historic levels of debt creation, and a Fed-created bubble waiting to burst. The “Trump Trade” has been on the expectation that market driven reforms, tax reform, and regulatory roll-back will generate massive economic growth, the likes of which we did not see during the Obama era. But as the list above proves: D.C. remains the largest stumbling block to American economic success.
The “Trump Trade” has been exciting to watch, and your portfolio has most likely benefited. However, history says, “what goes up, must come down.” With the uncertainty of what is to come, it may be time to move your gains off the table and into a safe place. Call your Ty J. Young Inc. advisor today to learn how you can have your money protected against market losses and earning a reasonable rate of return. 877-912-1919