How Trump’s Early Actions Shape the Market Outlook

How are you feeling about it? The market's up 4 percent in the, what we call the post election honeymoon period. So that's from election day until inauguration day, which is better than the average, which usually is a positive barometer for the first hundred days in the full year. But just on a mental note and a health note, how are you feeling?

Chris Versace: Well, I appreciate you checking in. Lindsey. I am as I tend to be cautiously optimistic. Really looking for the follow through from the market as we have a chance to not only digest this initial wave of things that Trump announced, and I know we'll talk about it more in a minute, but also I'm really [00:01:00] anxious to hear what the folks at Davos has to say about it.

You know, Davos, for those who are not familiar with it, this is the location of the world economic forum that's unfolding this week. We will be able to get the reaction to everything that president Trump said, and some of the executive orders from business leaders, world leaders alike. I think it's going to be a big week, Lindsay. Lindsey.

Lindsey Bell: It is going to be a big week and it's funny. I was looking at the economic calendar. I'm like, there's not a lot going on, but there's a lot of earnings numbers coming out this week. And like you just said, it's Davos. It's Trump's first week in office. I think we're going to learn a lot this week. It's safe to say, right?

Well, let's take a quick break. Uh, But before we do just a heads up, what we're going to cover this week, we are going to dive into our reactions on Trump's first waves of those executive orders. We're going to talk through the road, the outlook for M&A and deal making in the year ahead.

And then we're also going to do a check in on the consumer. After we heard from [00:02:00] some of the banks and saw retail sales, what it means for the year ahead. So we'll be right back on the other side of this break.

Welcome back everybody. Like we said, this is the first week of president Trump's second term. In his first year of his first term in office, we saw the stock market rally almost 20%. Chris, I don't know if we're going to be able to get a repeat of that, but a lot of folks are looking to 2025 to determine if 2018 was a good play book for this year.

Of course, tariffs are on top of minds, but I think president Trump came out swinging yesterday. We're taping this on Tuesday, declaring a lot of different executive orders. He was very clear on exiting the WHO, the World Health Organization, he made lots of pardons he declared an energy [00:03:00] emergency, he made some proclamations about immigration. But he didn't sign tariffs into place as was expected, though he did note that he expected to put 25 percent tariffs on Mexico and Canada on February 1st.

I think the market took it as a positive as we're moving higher today, all together, they took it as a positive. What stood out to you? And then we can dive into tariffs and other things as we get into the conversation.

Chris Versace: Well, I, I think his careful move, let's call it, with tariff, Lindsey, was kind of interesting. He did authorize a number of groups inside the federal government to study the impact that could come about. But you are right. He did kind of brandish about 25 percent tariffs on Canada and Mexico. And I got to say, that was a little bit of a letdown. I almost expected him to come out swinging against China, to be honest with you. So maybe this is a, dare I say it, kinder, [00:04:00] gentler Donald Trump that we're seeing. I, I'm not sure, but you know, some of the other things that kind of caught my attention were the move to roll back the Subsidies and other programs for EVs.

This almost seems like a real promise to the UAW that, at least according to Trump on his inauguration address, voted for him. I believe the word was rather bigly, Lindsey. So I, I think we're going to learn a lot more. Even as we're sitting here on Tuesday, there's word that we're going to get something new on infrastructure spending.

There's some comments out there that we might actually see Trump extend the Chips Act, which I think would make a lot of sense. Not only reshoring, but really beefing up our technology landscape against China. I could rattle on, Lindsey, but, what were you disappointed by, if, if there was anything?

Lindsey Bell: You know, I don't know. It's, it's hard. I think it's less important to be critical, less important to be disappointed. And really kind of as [00:05:00] investors, we have to think about how do we invest through the environment. And I think too, it's just a reminder, you're going to get things you like, things you don't like, right?

But as an investor, you should never let your politics really determine your investment decisions, right? If you were out of the market in 08, 09, because you didn't agree with Obama's policies, you missed a huge rally of like 150 percent in the Dow. If you were out 2016, 2017 because of Trump, you missed another rally.

So it doesn't make sense to get out of the market because of politics, but you can find opportunity embedded in different policies. I think you made a really good point about the extension of the Chips Act. The other thing I think that we need to, as investors look forward to is really what his pro business policies are.

And you, you mentioned a couple of them in your summary there. But if you look at the donors to Trump's inaugural fund lot of them were corporate and a lot of them were in the tech industry and the auto industry. [00:06:00] And I think it really is, it goes to show you look at the audience last night, too There's a lot of executives there, right?

Everybody's trying to guard her favor with this president that has a passion for business and is not afraid to sign orders into place to benefit or hurt specific industries. So you want to be on his side too. And I think that the dollars are flowing in that way. He raised 170 million dollars in his inaugural fund this year versus 107 million in 2017.

Biden only raised 62 million in 2021. So there's a, you know, Statista did a really great analysis of that. We could share that in the show notes. But the money's flowing into this administration and we'll see what policies flow from it too.

Chris Versace: you know, it's interesting you point that out about big tech, because we are in 2025 and there is a changing of the guard at the FTC. But remember that under president Biden's watch, all of big tech, it seemed was kind of under the [00:07:00] microscope for one thing or another with Alina Khan and the FTC.

And I think they're trying to make sure that any of those investigations, I guess we can call them kind of get rolled back, under president Trump. So I'm not really surprised that they were uh, let's not sugar coat it, Lindsey, kissing up to the new president.

That's what I would say.

Lindsey Bell: I think that's a fair point. I think another part of the Trump administration that investors are really focused on too is the deregulatory aspects of it, right? You just mentioned the FTC. We also saw changes that the Fed that are going to be occurring. And so I think we're gonna see more of that to come in the coming months, which brings me to our second topic, by the way,

Chris Versace: Whoa, whoa, whoa, whoa, whoa, wait, before, before we go there, Lindsey, I, I want to talk about a subtopic that is near and dear to your heart. You know, Trump, apparently one of the executive orders was rolling back work from home. [00:08:00] And I'm just kind of curious to what your thinking is on it. I think this is going to be more sizzle than steak, just given the federal government worker contracts that kind of keep, telecommuting, do we even call it that anymore? Telecommuting still in place? But I I, I know this is a topic that's kind of near and dear to you as you focus on the labor market. What do you think, do you think this is gonna, you know, a lot of promise and like a slow leaky balloon letting down, you know, the promise.

Lindsey Bell: I have to giggle at telecommuting because it does sound so old school. But I guess that's what it is. You know what, when I think about like return to office, work from home, whatever, I think it's become this really heated debate. I think workers have proven that they can be super productive from home.

And so I don't know why it's even an argument. But more than that, I think it's, it's not the problem, nor is it the solution. I think there's bigger problems and issues within the workforce and the work world now. I think this is a show [00:09:00] of, there's a lot of articles out now of like, is this a tug of war between employer and employee or who has the greater control over the other?

And I think that that is what, companies are trying to address right now. They're trying to instill control over their employees when they're missing the boat on what the real problem is which the real problem is lack of pay, worker fatigue, lack of autonomy or agency among workers. And the fact that we're working in an industrialized complex, but the economy has become service and knowledge oriented.

So I think that the issue is not work from home return to work here.

Chris Versace: Let me pose this to you. It almost seems like given your comments about the, the industrial versus service transition that, we almost need a new breed of management, right? Different skill sets than we have, you know, 20, 30 years ago. Kind of the IBM rollover model, if [00:10:00] you will. And perhaps investing in that and tapping into work from home or work from anywhere, that might be the smarter move.

Lindsey Bell: Yeah, no, I think that's exactly right. That's a great way to summarize it. I think that the companies need to, that they're getting too lean in the middle management, which is causing problems, not just for lower workers is creating problems for the executive levels too. So I think a program like that, it would absolutely make a lot of sense.

All right. Well, thanks for bringing that in. Thanks for bringing that in.

Chris Versace: Always want to hear your thoughts on things. You know that.

Lindsey Bell: I know you do and I love it. But I do want to get into the bank earnings because we've learned a lot over the last week with some of the big bank earnings. We came into 2025 and of course deregulation was driving investment into the financial services sector. But another big wave that is expected to support investing in the financial services sector is m& a and deal making. And [00:11:00] I know that you hung on to a couple comments that we got from some of the earnings call and some of some of the analysts last week. Investment banking was a star. It was a bright spot in the big bank earnings reports last quarter. Fees came in much better than expected.

And so it was really proof proof was in the pudding that 2025 could be that big deal making year. What were some of the details that caught your eye from the bank earnings with regards to deal making?

Chris Versace: I think just recapping the transcripts that I heard really from Morgan Stanley and Goldman Sachs. Those were probably the two biggest, but let's be honest, you know, almost any, bulge bracket bank that reported last week had some favorable comments about investment banking. And by that, I mean, you know, IPOs, secondary offerings, M& A, advisory work, you know, the whole kit and caboodle. So like Morgan Stanley, and this is a direct quote, they said, looking ahead to [00:12:00] 2025, our M& A pipelines are healthy and diversified, outpacing recent years. Now, this is the part that really got to me, Lindsey. Financial sponsors are joining corporates to drive activity, evaluating exit opportunities for long held assets.

To me, that sounds like we're gonna see some nice deal flow on the IPO front, especially when you think about financial sponsors, wink, wink, right? Private equity. And then just to round out Morgan's comments, they said, CEO and boardroom confidence continues to improve as valuation stabilize and financing markets remain strong.

And I take that to mean that. The spigot is open, and to the extent that we do see this pro business environment under the Trump administration unfold, we could see deal making advance. Then the other quick comment was just Goldman Sachs. This is a little shorter. Investment banking backlog grows significantly on a sequential basis and remains [00:13:00] robust, particularly in advisory.

So I think you slap it all together, Lindsey, and it looks pretty good. But there's some other comments out from Citibank talking about other factors that should prop up the level of investment banking activity in 2025. And one of them I was kind of caught off guard with a little bit, but it was the strength in the dollar.

But that does make a tremendous amount of sense when you think about it. I kind of liken it to a U. S. tourist going abroad, right? Your dollars go that much further, kind of similar.

Lindsey Bell: Yeah, no, I think that's exactly right. I was surprised to hear that too. But we have seen the dollar even, you know, especially with Trump coming into office, you see the dollar popping again. And so it does make total sense that, you have a strong dollar. You can buy things overseas for cheaper. Valuations overseas I think, has also been an attractive point for investors looking for deals. And so I think you're absolutely right. I also think the other thing that's [00:14:00] notable from the banks is buyback programs. Citi announced a 20 billion dollar stock buyback program. JP Morgan they did mute their buyback program because Jamie Diamond thought the stock was expensive, but the shares just keep going higher and they have the ability to buy back if they so choose.

So I think that you are starting to see the banks buy back. I think you're going to see, with deregulation, less capital requirements on the banks, which allows them to spend and return capital to shareholders. So I think there's certainly a lot to consider within the financial services sector and the valuation, by the way, doesn't look too stretched.

Go ahead, Chris, what's on your mind.

Chris Versace: I was going to say just on that one point, you know, when you're talking about buybacks and we do have to every year look at the bank stress tests. But I also think, though, that folks are a little more excited about the potential flexibility for bank balance sheets, because it it appears that the Basel III regulations are going to get [00:15:00] pushed off. We already know that they were going to get watered down to some extent, but to the extent you know Chairman Barr has stepped down from that role. I think that's a big signal. And, you know, the funny thing too is if Trump if he simply does nothing on this front, it's akin to them kind of being mothballed, right?

So, it's something to watch, I think, on the Trump landscape. It's not so much in this case, what does he do, but what doesn't he do?

Lindsey Bell: Yeah, that's a fair point. I thought, I liked that. It's an interesting take that you're bringing. But I also think for the sector, you have to watch, yields. And yields, they shot up and now they're coming back down after we got, you know, what was deemed better than anticipated inflation, which we talked about last week.

And so, maybe investors were overshooting where inflation could go from here. But the fact of the matter is, you still have a yield curve that's sloping positively. So meaning the 10 year is higher than the two year, and that's a [00:16:00] good environment for banks to operate in. And you saw net interest income was also very good for a lot of these big banks.

We'll hear from the regionals, which is a different risk picture. We're going to hear from them this week. I don't know if you're looking at any particular regional banks. But a lot of them are going to come out this week. And I think it's also notable because, you know, it wasn't that long ago, it was September.

I don't know if you remember this. J. P. Morgan issued, Dan Pinto issued he issued a warning that the expectations for net interest income in 2024, granted this is September, were, were way too high and expense reductions were way too low. What did we see this fourth quarter? Net interest income came in way better than expected.

Expenses, that was another thing by the way for the banks, they all managed expenses very very well, down like seven, 8% on average. So that was, I don't know if you were, you remember that, but I think these were really good and really healthy results. Don't get me wrong.

Chris Versace: Oh, I totally agree. And [00:17:00] your point on, I won't say expense reduction. I'll say margin and margin improvement, which is kind of the other side of that coin. Yeah, that really did stand out. You know, they, they are managing their, their cost structure very well.

Lindsey Bell: Well, and the other thing that stood out, we'll get into our final topic here with their consumer businesses, Chris. And you know, we have been talking about warnings. We're going to hear from Ally, which full disclosure, I used to work there. You know, they not too long ago warned about delinquency rise, rising in their auto loan business. But what we saw from the banks in the fourth quarter, I think that was ahead of their third quarter report.

But what we saw from the, the big banks, at least so far, again, can be a different customer base. From their consumer businesses. saw was, was that they did increase credit reserves, but at a reasonable and slow rate in the fourth quarter from the prior quarter. They're still up like 20 to 30% on a year over year basis.

But if you think of the backdrop of [00:18:00] 2023 versus 2024, you know, reserves, maybe they got a little too low and they needed to be rebuilt as, as consumers did take on more credit. But, but they talked about the, the health of their consumer business being, you know, pretty resilient. Jamie Diamond said, I think called the consumer healthy.

They was healthy spending going on. Lower unemployment, certainly helped. Real, real wage growth, certainly helped the consumer in the quarter. And what I found interesting for one callout, is when they talked about increasing credit reserves, at least J.P. Morgan, they said, within their consumer business, the net reserve bill was predominantly in card services, driven by growth in revolving balances, which is credit cards, partially offset by changes in certain macroeconomic variables. Partially offset by changes in certain macroeconomic variables.

That, that insinuates that those variables are more [00:19:00] favorable. Right, Chris? Am I wrong? Am I

Chris Versace: No, no, no. You're right. You're right. I'm just kind of curious as to what those variables are, right? Because we've seen better than expected job growth. We've seen, you know continued real wage growth that argues in favor of a, Maybe not robust consumer, but certainly a healthier, healthier consumer than people were thinking earlier in the second half of last year. It's kind of interesting to compare contrast, right? The comments from the banks that you just shared. With comments from like Albertson's, the most recent grocery chain to report, and they were continuing to say that based on what they see across their store footprint, both the number of stores and across the footprint of each individual store, is that consumers remain selective. And we touched on in the opening comments that Davos is going on. And I was lucky enough to listen to some comments from a PepsiCo CEO. And he did say, yeah, there's some positives. [00:20:00] Inflation is slowing wages are growing, right. Which is good for real wage growth. But he also said though, there's really a bifurcation in the consumer, right?

There's those who are doing well, continuing to pay on things like entertainment and experiences, but, and I was surprised by the size of this. He said there's about 40 percent of families that are struggling to get to the end of the month. So, in the way I look at the world, that kind of reaffirms our cash strapped consumer perspective. But I was just, you know, the yin and the yang on these comments. I think folks need to be careful and recognize that just because you're getting positive data from one source, it It doesn't mean that it flows through across the entire landscape.

Lindsey Bell: Oh my gosh, I totally agree with that. Could you quickly remind me, Albertson, is that a higher end or middle or lower income consumer?

Chris Versace: Well, you know, if we, if we say Whole Foods and [00:21:00] Sprout's Farmers Market is a little higher end,

Lindsey Bell: Mm hmm.

Chris Versace: would say Albertsons, that includes like Ralphs and some others, that they're, they're kind of middle of the road. They're certainly not a discounter of groceries. You know, it's not going to compete with like Costco, Walmart, that sort of thing.

Lindsey Bell: So, that's good to know. So you're talking about the middle to higher income consumer. Well, so spending data from Bank of America, which they release monthly, their spending data for middle and higher income households in December showed a bump. It was up nearly 1. 7 percent from a year earlier.

Lower income household outlays were 1. 3 percent higher, but that was A change in dynamics because you know, over the last several months, it was the opposite where the lower income households were spending more than the higher income households. And and so I think you, that, that also is reflective of wage growth too.

I talk about that, you can look at the aggregate wage growth in general has been much, much higher at the [00:22:00] lower end, the hourly, earning workers because where the job demand really has been. Whereas the middle to higher middle income their real wage growth has been much more stagnant. So I think there is this bifurcation Chris.

Chris Versace: I agree. How, but how are those, you mentioned those are December numbers, right? So,

Lindsey Bell: Yeah

Chris Versace: how, how does the impact of the holiday shopping season or December Christmas shopping, what have you, how, how does that factor into that?

Lindsey Bell: So they don't exactly explain that But I do think that that's a good point that you're making that there is, maybe the higher income consuming family is willing to spend a little more on discretionary items and you and I've been looking at a lot of the retail sales report that you know the official government ones and a lot of different various people that track at institutions to track it and what you have seen is yeah, there's a bump in discretionary spending. That there was a decline and you saw it in the the retail sales and spending on eating out at restaurants and bars and food [00:23:00] service places but also on groceries too.

And as obviously as the holidays pass, you know, there's less spending on groceries, but it's going to be really interesting to watch in the year ahead. I think some economists are concerned that the saving rate. It's been steady over the last several months, but it has come down. I'm going to go ahead and throw out that the consumer is, is maintaining resiliency, at least in the near term, but it's something to keep an eye on.

It's going to be predicated on where wage growth goes from here too.

Chris Versace: So let me run a comment by you, Lindsey, that kind of stood out to me from the PepsiCo CEO at Davos. He said the consumers are getting used to price levels, right? So they're kind of becoming desensitized, no longer sticker shock, all of what you will. And okay, I could see that, you know, they're, they're kind of remaining at levels.

Maybe there's some extra use of discounting and specials, that sort of thing. But I was also thinking about this comment that people are getting used to higher price levels. Maybe people are starting to [00:24:00] get used to the fact that hey, mortgage levels, they're going to remain a little higher than I thought for the time being. And I just wonder if it means that folks might, you know, other circumstances got to move, got to meet, need a bigger house, what have you, they might prevail. And perhaps folks might just say, I gotta buy a house.

Lindsey Bell: Okay, well, I have an alternative theory.

Chris Versace: Good. No, let's hear it.

Lindsey Bell: that I think that people are finding ways to make ends meet through taking on or creating different opportunities for income generation. I'm actually working on a Harvard Business Review article. I've been working on this for a couple of months where I'm going to explain all this.

So that's my little teaser. But I will say one thing about your grocery store cost. All I know is in my grocery store is when butter goes on sale or eggs go on sale or those expensive products go on sale that the shelf gets cleared out in no time.

Chris Versace: I will say that as an investor, [00:25:00] during the holidays, I do a lot of what I call mall walks. And when I go grocery shopping, I actually take my time and weave through the aisles just mentally noting, Oh, I'm seeing this on sale, this, you know, blah, blah, blah. I am seeing soda at Harris Teeter in some instances, buy, buy two, get three free of 12 packs. Which, soda is ridiculously priced and I don't really drink it but it is interesting to see that type of promotional activity unfold. And as far as side hustles, Lindsey, which is what I think you're kind of referring to there in your the article you're working on does podcasting fall into that?

Lindsey Bell: Yes.

So, you see what I'm saying, you see what I'm saying? Well, I think Chris with that, we'll leave it there. We're going to take a little break before we close out this episode.

Well, welcome back, [00:26:00] everybody. Let's wrap up this episode, Chris, of the What Does It Mean podcast. What did you learn today? What was the most important point we made?

Chris Versace: Well, I think in our conversation about banks, we didn't come out and say it, but I think between what you were talking about with regional banks and what we were talking about with big banks, you really need to understand the differences between the two and the drivers. Right. Your regional banks, they're not really going to participate in investment banking. So if you, we see an uptrend in investment banking activity, like the one that is expected to unfold, you really want to be in those bigger banks. Those that's your JP Morgan's, your Goldman Sachs, your Morgan Stanley's, for example. Smaller and regional banks, People's Bank, for example, may not be a beneficiary. So it's just a reminder, know what you own, know what drives the business.

Lindsey Bell: Awesome. I think that's a really good and important point because not all banks are created equal. I think what I learned is that in our discussion about the [00:27:00] consumer is that it's a complex topic. The consumer is resilient but also government data, the response rate to government data, we didn't talk about that either, has been pretty low, 30%.

Is the average for, I think, the JOLTS, the response to the JOLTS, for example, the JOLTS, the Bureau of Labor Statistics Jolts report. And, I mean, there's a lot of other data points that are just the same. And I think part of it's the antiquated way they collect data this digital age that we live in. But it's something to consider because I think even you and I spent a lot of times like digging deeply into some of these economic data points, and it's still hard to paint a clear picture on the economy and the consumer, and that might just come into play in market reaction this year.

Chris Versace: Totally agree. I would just offer this up. If Gallup can figure out way to get people to contribute what they're watching on various devices. I've got to think there's a better way to collect this economic data. You know, hey, Lindsey, maybe there should be an app for [00:28:00] that.

Lindsey Bell: Yes, I think, I mean, let's get Trump to put an executive order in. Too bad he can't do it for spending dollars, but, you know, investing in, improving the data collection systems of the U. S. government.

Chris Versace: Well said.

Lindsey Bell: Alright, with that, that's going to be a wrap. Check out the show notes and resources. You can find Chris, over at the street pro portfolio and you can find me and my insights on LinkedIn.

Thanks for listening. We'll be back with you next week.