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Wall Street does not like uncertainty. If you read the world press you get the feeling the world is wondering what US policy will be over the next four years. If you look at the rising US stock market, viewing it as a leading indicator, you get the feeling the stock market is optimistic. No one can accurately predict the future, but I am optimistic too.
Why am I optimistic? Here is my logic:
1. The government will likely be pro-business. There was a lot of direct and indirect support from businesses during the campaign. Companies are faced with regulations. Many serve a noble purpose, while other make it more difficult to do business. The government will likely have pro-business advocates in leadership positions. They will try to make it easier, not more difficult for firms to do business.
2. More business profits lead to more tax revenue. There are reasons to direct profits to Research & Development. However, when businesses are profitable, the government gets its share in tax revenues. There are ways to minimize how much you pay, but the government still gets a share.
3. Driving innovation in technology. There are smart people all around the world. They are working away in company labs and doing research at universities. The US has been a leader in technology for many years. If the technology is discovered, patented and Licensed here, we can make a profit while sharing it with other countries.
4. Many things have been promised to many people. They need to deliver. The winning party carried both the electoral college and the popular vote. They have a majority in both houses of Congress. People often vote with their wallets. The promises made, like no income tax on tips or Social Security, should put more money in people’s pockets. People will expect the party in power to keep their side of the bargain.
5. If we get a new tax code, that is likely how promises will be kept. If the promises included no federal income tax on tips or Social Security, this will need to be written into the tax code. If there is a concession on SALT, that will need a change in the law too. The new tax code is how the message “we kept our promises” will be delivered.
6. The US has wanted to be energy independent for decades. The US has sought energy independence since the Arab oil embargo of 1973. Shale oil and fracking has allowed the Us to increase domestic oil production. Alternative energy sources might be the wave of the future, but the US economy still depends on fossil fuel. If artificial intelligence (AI) will need plenty of electric power, it will need to come from somewhere. If we use fossil fuels, it makes sense they are sourced domestically.
7. Alternative energy might be popular if it creates jobs here. There is a clear case why alternative energy sources make sense. This might be solar, geothermal and wind power. The government will likely be very supportive when it both makes business sense and the equipment manufacturing and power generation are all done in US states, providing US jobs,
8. Promoting lower interest rates generally mean economic growth. Before a business considers a new venture, it does preliminary work like a cost benefit analysis. One component is what is the return on investment in percentage terms and what is the cost of capital in those same terms? A higher cost of capital makes fewer projects viable, and a lower cost of capital gets more projects started.
9. Less regulation drives the economy. Excessive regulation is often the reasons why projects take longer to get done or don’t happen at all. There is regulation on the Federal, state and local level. No one wants to put lives at risk, but the development of pandemic vaccines is a good example what can happen when American business focuses on getting a job done. Less regulation should translate into higher business profits.
10. The goal is to sell more US goods abroad. There has been talk about tariffs. Many countries have their own framework of tariffs. The concept of the European Union was to copy the regulatory framework of the United States, where businesses could can easily sell across state borders. There has also been talk of bilateral trade, where two countries make a deal between themselves. The US would likely seek to make mutually beneficial deals.
11. Will the country be run like a business? It is easy to make the case why this cannot be done. The post office was a government agency for many years. A first class stamp will deliver a Christmas card across the street or to an address in Alaska for the same price. You can make the case why many areas of government would benefit from being subject to the same decision making criteria as used in private enterprise. Not all, but many.
12. The goal might be “Are you better off than you were four years ago?” President Ronald Reagan was credited with using this expression when he ran against Jimmy Cater in 1980. It has been said elected officials start campaigning for reelection the day after they step into office. This is especially true in the House of Representatives, where everyone is up for reelection every two years. The goal of the elected government may well be to see the country steadily becomes more prosperous over four years’ time.
When you watch some TV news stations, you get the feeling they want people to be apprehensive and scared. From an investment perspective, there are many reasons to be optimistic.