Goldman: “All Our Clients Are Confused And Unsettled”

Markets “bought” the election. Now the question is whether they will sell the inauguration. That is the take from the latest weekly letter by Goldman’s chief strategist David Kostin, who says that “investor angst is high.” Kostin then explains the one-word reason behind such confusion and angst – take a wild guess what it is. Which is ironic, because while on one hand investors and strategist are losing sleep over Trump policy uncertainty, on the other hand, every single one of them is convinced that Trump will unleash massive stimulatory tax cuts and hundreds of billions in fiscal stimulus with effectively no risk.

Go figure.

FInally, the Goldman strategist reveals what Goldman believes is the best investing strategy for a Trump presidency (which means most investors may want to do the opposite).

Here is the full note:

Conversations we are having with clients: An investing strategy for a Trump Presidency

“I, Donald John Trump, do solemnly swear that I will faithfully execute the office of President of the United States, and will to the best of my ability, preserve, protect, and defend the Constitution of the United States.” With those words, the New York businessman became at noon today President of the United States of America, completing one of the most improbable election campaigns in the country’s 240-year history.

“Unsettled” is our best description of fund managers’ mindset as the new administration takes office. During an extensive series of client meetings in the US, Europe and Asia, it became apparent that investors are confused about how to best position portfolios under a Trump presidency.

Optimism is reflected in the strong performance of markets during the 73-day transition period between the election and inauguration. Investors have embraced the prospect of faster GDP growth and higher inflation as a result of reduced corporate taxes, a looser fiscal policy, and less regulation. Surveys such as NFIB small business confidence and consumer confidence both soared to their highest levels in 12 and 15 years. 

S&P 500 index has climbed by 6% since November 8 led by Cyclicals broadly and Financials in particular. Europe, Japan and MSCI Asia stocks have returned 8%, 12% and 1%, respectively. Implied inflation during the next decade equals 2.0% and the 10-year Treasury now yields 2.47%.

Policy uncertainty was a topic of concern raised in every client meeting. While we expect corporate tax reform legislation will be enacted in 2017, the magnitude of cuts and offsetting revenue proposals are unknown. Many tax reform ideas have been discussed in general terms but the administration has not yet endorsed any specific proposals. Investor confusion increases when a topic that appears to be gaining political momentum – such as border-adjusted tax reform – is suddenly discredited when the President dismisses the idea saying it is “too complicated.”

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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