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Tags: donald trump | stock market | investors | effect

Weak Economy and Higher Rates Could Push US Into Recession

Weak Economy and Higher Rates Could Push US Into Recession

(Getty/Zach Gibson)

Lance Roberts By Monday, 21 November 2016 07:55 AM EST Current | Bio | Archive

 
The markets, and a large chunk of the nation, remain a mixed bagged of emotions ranging from exuberance and disbelief to anger and depression.

While I don’t want to get into the “left versus right” debate in this missive, it has been interesting to watch market participants swing from “Trump The Terrible” to “Trump The Great” in relation to the markets and economy and he isn’t even in office yet.

It is same as giving Obama the Nobel Peace Prize when he entered office, an action the Nobel committee has come to regret.

But which is it really?

While Trump certainly has an extensive list of actions for his first 100-days, there are many headwinds to actual policy implementation and ultimately their success.

Also, a big part of the success of any policy comes down to one thing – “timing.” A good example of this is the “infrastructure spending” plans which will require a significant increase in the national debt to accomplish.

While the market participants have already been chasing financial and infrastructure related assets, an infrastructure program should be prepared but not implemented until the next recessionary drag in the economy. The debt increase needed to fund an infrastructure program, which would likely coincide with a new QE program to buy the debt, would potentially have the greatest effect at limiting the economic drag of the recession.

It is the same with trade policies, immigration reform and even tariffs. For every policy, there is a significant potential for a near-term negative impact on economic growth even though the long-run outcome will be positive. With an economy running at below 2%, consumers already heavily indebted, wage growth weak for the bulk of American’s, there is not a lot of wiggle room for policy mistakes.

Combine weak economics with higher interest rates, which negatively impacts consumption, and a stronger dollar, which weighs on exports, and you have a real potential of a recession occurring sooner rather than later.

However, that is a conversation for later, as the flood of liquidity to support the markets once again, as was seen post the “Brexit” vote has propelled markets higher in a short-covering feeding frenzy.

Importantly, with next week being a light trading week, it would not be surprising to see markets drift higher. However, expect a decline during the first couple of weeks of December as mutual funds and hedge funds deal with distributions and redemptions. That draw down, as seen in early last December, ran right into the Fed rate hike that set up the sharp January decline.

With much of the same backdrop currently in the works, some caution is advised.

Lance Roberts is a chief portfolio strategist and economist for Clarity Financial.

© 2022 Newsmax Finance. All rights reserved.


LanceRoberts
After more than a week following the election, the markets, and a large chunk of the nation, remain a mixed bagged of emotions ranging from exuberance and disbelief to anger and depression.
donald trump, stock market, investors, effect
452
2016-55-21
Monday, 21 November 2016 07:55 AM
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