Presidential candidates make lots of promises to win elections, but fulfilling them is another thing — and that could work in the favor of investors.
“Everybody needs to settle down and see what happens,” Michael Serio, regional chief investment officer at Wells Fargo, told a gathering of clients at the Denver Art Museum on Tuesday regarding the election of Donald Trump.
President Bill Clinton managed to fulfill about two-thirds of his campaign promises in his first term, while breaking 31 percent, according to a study by Strategas Research Partners.
President George W. Bush kept 46 percent but broke 25 percent, while President Barack Obama kept 47 percent and broke 23 percent and investors seem to be betting that Trump will face a similar struggle.
Expectations are growing that Trump’s more commerce-friendly proposals, such as lighter regulation and lower taxes, will be implemented, while less favorable ones, such as tougher trade barriers and mass deportations, will be moderated.
“Whoever is President can’t change the world in 18 months,” said Erik Davidson, chief investment officer at Wells Fargo Private Bank.
On the surface, President Obama is handing over an economy in much better shape than what he inherited and consumers are getting a boost from lower fuel prices and low interest rates.
But Trump’s victory, not to mention the strong showing by Democratic candidate Bernie Sanders, reflected a strong current of economic discontent. About eight in 10 people in the country have seen their incomes decline in inflation-adjusted terms since 2008, Serio said.
Had the U.S. economy just managed to grow at its long-term average of 3.1 percent a year instead of the closer to the 2 percent rate averaged since the recession, U.S. households would on average have $30,000 more to show for it.
Serio and Davidson said political polarization and populism are likely here to stay. But a surge in infrastructure investments and a deal between the administration and Congress to repatriate the $2 trillion in corporate assets held abroad could give the U.S. economy a shot in the arm.
Rising deficits, however, will put upward pressure on interest rates and investors, who have only known falling rates since the early 1980s, face a major mental shift, Davidson said.
Bond markets are 10 times the size of equity markets. Given that bond prices fall as rates rise, Davidson urged fixed income investors parked in Treasuries and other safe havens to study income alternatives like master limited partnerships, real estate investment trusts and high-yield bonds.
Although some view the country’s economic divide as between the rich and poor, Serio said it is fundamentally about the educated and the uneducated, the skilled and unskilled.
The unemployment rate among those with any type of college degree is 2.5 percent, while the unemployment rate for those without a high school diploma is running 7.5 percent.
An aging U.S. population will put pressure on labor markets in the years ahead and a lighter regulatory hand could boost hiring, especially among small businesses, Serio said.
That would suggest the country needs more migration, not less, as Trump has proposed, he said.
