Implications of the Trump Presidency for US Stocks

After 107 days of the Trump Presidency, we believe that this administration is determined to be the wildest reality TV show of all time.  People say, "War is God's way of teaching us geography."  Perhaps Donald Trump is God's way of teaching us about the Federal Government?

The purpose of this commentary is explain the challenges of making radical decisions about the US tax code and economy without creating counter-productive secondary effects.  We will also project how these decisions affect specific sectors and industry groups.  We'll do our best to write about Trump while leaving partisan feelings to the side.

As we often tell our clients, emotions and news nuggets dominate day by day fluctuations in the US stock market.  Over longer time frames - quarters, years, decades - only revenues, earnings and interest rates matter.  Ultimately, we invest in the cash flow generated by US corporations, discounted by expectations of current and future interest rates.  Rising revenues and expanding earnings support the market; rising interest rates harm the market.  With this framework in mind, let's review everything we know about the Trump presidency so far.

Healthcare

Spending on healthcare represents 17.1% of the US economy, yet our health outcomes (obesity, child mortality, addiction rates and chronic disease) trail "socialist" countries that spend much less including Sweden (11.9%), France (11.5%), Canada, (10.4%) and Japan (10.2%).  These countries regarding health care spending as an investment in productive workers the way a manufacturer regards maintenance dollars spent on factory robots as an investment.

Americans don't regards healthcare spending as an investment, but as a cost.  Uniquely among major industrialized nations, the provision of healthcare in the US is attached to employment, which left 50 million Americans uninsured prior to the passage of the Affordable Care Act in 2010.  The ACA, with all its flaws, enabled 22 million to receive insurance, whether through purchasing policies through the exchanges, Medicaid expansion, or as young adults staying on their parents plan.  We have HNW clients who are enrolled in Obamacare because it's the most affordable option in their communities.

Conservatives hate the cost of the Affordable Care Act that is covered by a 0.9% increase in Medicare Tax for earned income in excess of $250K for a couple, $200K for an individual and a 3.8% surtax on the unearned income (interest, dividends, passive business income).  These taxes apply primarily to the top 2% of US earners and generate about $30 billion annually in tax revenues.

Given that Congress voted over 60 times to repeal the ACA between 2011-2016, observers assumed that repealing Obamacare would be the first act of the new administration.  Indeed the S&P 500 Health Care index, sold off through the summer of 2016, rallied just before the election anticipating a Clinton win, sank in the days after the election.

Read the full commentary here