The 115th Congress just convened. Republicans hold a 241-194 majority in the House of Representatives and a 52-48 advantage in the Senate (there are 2 Independents, both of whom caucus with the Democrats). When President Donald Trump takes the oath of office today (January 20), Republicans will control the House, Senate and White House for the first time since 2006 and only the third time since the end of WWII. Pressure will be on the new President and Congress to make good on the many campaign-trail promises.
Investors will want to keep an eye on these market-affecting issues:
Affordable Care Act
Republicans have set an aggressive timeline to repeal and replace the Affordable Care Act. However, there are still decisions to be made on which provisions will stay in place and which will go. These changes may lead to some uncertainty in the health care sector.
Infrastructure plan
Another campaign pledge included an infrastructure agenda to create a spending package that would address the nation’s crumbling roads, bridges, tunnels, airports, seaports, electric grids and more. Such investments could stimulate the gross domestic product over a multi-year time frame.
Tax reform
Perhaps the most interesting shift for investors and the markets may be the possibility for tax reform. Corporate tax overhaul could include significantly lowering tax rates to encourage corporations from inversion practices (transactions that allow a U.S. company to merge with an overseas firm and pay a lower tax rate in the latter’s country). Additionally, President Trump pledged to lower personal income tax rates, which could include eliminating the estate tax and repealing the Alternative Minimum Tax. The challenge here will be how to pay for the tax cuts, and the overall effects on the federal deficit.
International trade and market impacts
Trump campaigned often about revising the North American Free Trade Agreement, Trans-Pacific Partnership and establishing tougher rules on trade with China. This has led to some fears of possible trade wars and could upset international markets.
In general, election results are not so great for predicting stock market returns. From an investing standpoint, no matter which party wins the White House, markets react most to uncertainty. The Trump administration could encourage significant policy change over the next four years. Markets and interest rates have already moved in anticipation of what may happen with the new administration. However, there is still much that remains to be seen regarding this ambitious agenda and the political reality of implementing such sweeping changes. We anticipate markets will continue to be susceptible to volatility in the short term, as politics, monetary policy and economic forces converge in early 2017.
Linde Carroll is an investment consultant at Vancouver-based investment management and financial planning firm Sustainable Wealth Management. Carroll’s focus is on serving clients in retirement planning and portfolio management. Securities and advisory services offered through KMS Financial Services, Inc.
