Essentials

Special Report

There is no better way to gauge the macro policies of the new US administration than being privy to President Donald Trump’s discussions with the new Treasury Secretary, Scott Bessent. While we do not have inside information, we have put the pieces of the puzzle together to help clients see the big picture. This report presents our take on a hypothetical conversation between President Trump and Scott Bessent that led to the latter’s appointment as Treasury secretary.

Special Report

At the beginning of the 1970s, investors flocked to a select group of growth stocks loosely known as the Nifty Fifty. These companies’ earnings growth was considered so dependable that they were touted as “one-decision” stocks that a shareholder would never have to sell.

Bank Credit Analyst

Bank Credit Analyst

Bank Credit Analyst

Trump’s resounding victory brings a popular mandate that ensures deregulation and higher trade tariffs. Higher budget deficit and immigration reform are also in the cards as the Republicans look like they may squeak a thin margin in the House of Representatives. Foreign policy will become more unilateral, with US assets outperforming initially.

Bank Credit Analyst

Bank Credit Analyst

In Section I, we explain how recent positive data surprises are connected to expectations of Fed easing, meaning that they are self-limiting. Yields will rise even further if US economic data continue to surprise to the upside, which will put the US back on a recessionary path. A Republican sweep has the potential to be positive for US economic growth over the next year, but trade action under a second Trump presidency will likely be aggressive and economically damaging unless deftly offset by sufficiently large fiscal thrust. In Section II, we explain why the Fed is not politically biased, but has become structurally dovish because of the GFC, its shaken confidence in the “stars”, and its ability to forecast the economy. Over the next year, the Fed may appear to be acting in a politically biased way even if it is merely responding to economic developments. The Fed’s independence could be challenged under a Trump presidency if trade action is not severe.

Bank Credit Analyst

US nuclear energy is in a state of decay. The industry lacks standardization, making it expensive and timely to deploy new nuclear energy projects. Policy support is also lacking compared to other energy sources. Public opinion on nuclear energy is warming but will do little for commercial uptake – investors still face massively high startup costs. Meanwhile, competition is heating up. China is fast approaching the global top spot with its grand nuclear energy strategy. For once, the US may not be the best investment case we have all come to know.

Bank Credit Analyst

The adrenaline from the recent policy stimulus might be sufficient to produce a window of outperformance for Chinese equities and China-plays in financial markets. However, this adrenaline will not extend to China's real economy. Net-net, we are upgrading the allocation to EM in a global equity portfolio from underweight to neutral.

Bank Credit Analyst