Donald Trump is the current Republican presidential front-runner by a considerable margin.
But no matter how much Republican establishment types dismiss the notion of a Trump presidency, a top analyst said Tuesday that it is time to start focusing on what “President Trump” could mean for markets.
“The biggest financial impact probably would be on the bond market, with interest rates headed significantly higher as Trump unveils more new spending and tax cuts that won’t be paid for,” Greg Valliere, the chief global strategist at Horizon Investments, wrote in a note on Tuesday.
Here are Valliere’s five market implications of a Trump presidency:
- Trump won’t get along with Federal Reserve Chair Janet Yellen. In October, Trump claimed that Yellen was keeping interest rates low as a political favour to President Barack Obama, so that the next commander-in-chief inherits big problems. Valliere thinks Trump would listen to his friends on Wall Street — who would advise him not to pick fights with Yellen directly — and so the friction between the two would endure.
- Trump has unveiled a plan to eliminate income taxes for up to 72 million households and simplify the process of filing taxes. If he becomes president, Trump would also likely eliminate corporate taxes and the inheritance tax as well as lower capital gains taxes. “We could envision a scenario in which Trump and Paul Ryan might work together on tax simplification and reform,” Valliere wrote of Trump and the current House speaker.
- Trump would have a tough time renegotiating the North American Free Trade Agreement, or NAFTA, as he’s proposed. NAFTA has been in place since the mid-1990s and allows free trade between the US, Mexico, and Canada. But “the greatest risk on this front would be a serious rupture in relations with China, the target of scathing Trump attacks,” Valliere wrote.
- The budget deficit would soar, according to Valliere. Trump favours heavy spending on defence and veterans’ programs but has no credible proposal to cut the deficit, he wrote. “The budget deficit already is likely to rise in the next decade for demographic reasons; if Trump were president it would explode,” Valliere wrote.
- A Trump presidency would be great for defence stocks. He has maintained an aggressive stance against the terrorist group ISIS, and his plans would require heavy defence spending.
And so with Trump still leading in the polls, Valliere thinks he will have to offer more concrete numbers on his economic plans.
“The chance of Trump becoming president is below 50%, perhaps something like 30%. But it’s not zero,” he wrote. “As the campaign unfolds, he will have to offer more details, and we’re certain his numbers won’t add up.”
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