A “minor correction” looms for the record-setting stock market, but Donald Trump will help the “ordinary investor” if the new president stops "flailing" and starts delivering on his campaign vows to make America great again, Peter Morici, a syndicated columnist and economist at the University of Maryland, tells Newsmax TV.
“I can't imagine it's going to keep going up like this and then not have a little minor correction at least,” Morici said of the lofty market's bull run since Trump's election victory. "Or even a large one. Not permanent."
Stock benchmarks have advanced on speculation Trump’s pledges to cut taxes and increase fiscal spending will boost companies that benefit from economic growth. The Dow Jones Industrial Average added to its all-time high Wednesday and the Russell 2000 Index extended a rally to 14 days as data fueled speculation that the world’s largest economy can withstand higher rates that the Federal Reserve has signaled may be imminent.
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The S&P 500 Index rose 0.1 percent to a record 2,204.61 Wednesday at 4 p.m. in New York. The Dow rose past 19,080, adding to an all-time high. The Russell 2000 Index of small caps climbed 0.5 percent to the most ever. It’s up 16 percent during its longest winning streak since 1996.The S&P 500 has rallied 3 percent since the U.S. presidential election.
“There's a lot of optimism about the election of Donald Trump because after all, Barack Obama has been the most anti-business president we have had. I mean he has a visceral dislike for guys in Cadillacs, or worse, guys in Lexuses,” Morici told Bill Tucker on "The Steve Malzberg Show."
“Getting rid of him (Obama) is good for stocks, but now Donald's got to deliver and we do see him flailing about a bit,” said Morici, who is also a Newsmax Finance Insider.
“The eclectic collection of appointees that he has indicates that he doesn't have a very well-defined vision of what he wants and people in mind to fulfill it. Instead he's got competing interests,” Morici said.
“He's got the Steve Bannons on the one hand who want to really drain the swamp, to use their rhetoric, and then you've got Mr. Pence on the other who would like to basically say, ‘Hey great Donald, you won, we Republicans are grateful, now we're going to put in place the George Bush administration and we'll start with Nikki Haley. Time to start picking from the governors and senators in the party to be in your administration so we can have a Jeb Bush White House,'” Morici said.
“So you've got those to competing camps and how that plays out is going to be tough to say,” he explained.
“If we get a watered-down, Bush supply-side policy, I don't think that the economy is going to prosper,” Morici said. “For example, a deficit-neutral tax cut, but nothing one about trade. But if he's serious and really starts pulling out regulations by the roots, and we have a tax cut that raises the deficit a bit and we have a trade policy that isn't reckless … It just doesn't rip up NAFTA, but really gets tough with China. It doesn't rip up TPP but it gets tough with China. Then we'll start to get results,” Morici predicted.
He also says the looming Federal Reserve rate hike isn’t something to be feared.
“We'll start to get real interest rates up there again and grandma will be able to actually earn some money on her CDs at the bank and that's very, very important for elderly Americans,” he said.
And if Trump’s economic strategy pans out, the economy should start growing at a healthy pace once again.
“I think that we're looking at a period where nominal GDP goes up at 6 percent a year and with that in mind, I think stock prices will move in kind. This recent rally is not indicative, that's just a celebration, but over time I think stocks will move up and that'll be good for ordinary investors,” he said.
Those “ordinary investors,” however, shouldn’t just jump into the stock market without some type of savvy strategy. Morici suggests caution over recklessness.
“My feeling is that ordinary folks, and I'm an ordinary person, ought to just buy in gradually. Either they have a group of stocks that they're purchasing, say five, 10 stocks that they're betting on,” he said. “I think it's a very foolish example to bet on where Trumponomics is going to benefit companies the most.”
(Newsmax wire services contributed to this report).
Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1
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