On one hand, firms’ periodic commentaries need to discuss developments--including politics--that can impact markets. On the other hand, political discussions can risk alienating clients and prospects that may disagree with statements expressed in commentaries.
Following the election of President Donald J. Trump, equities have rallied due to a combination of improving economic data, strengthening oil prices, and anticipation that the new administration will support economic growth by cutting taxes, reforming regulation, and increasing stimulus spending.
At the same time, however, many investors worry that his protectionist policies may hinder trade, hurt global economic growth, and increase costs of imported products in the U.S. The concerns exist at a time when many Americans are concerned overcontroversial comments that Trump has made regarding minorities, immigrants, Muslims, and women.
Many investment firms have expressed those economic sentiments in their market commentaries, but have maintained balanced discussions. Bob Doll of Nuveen Asset Management, for example, notes that Trump will need Congressional support to enact fiscal proposals, so the final stimulus package may be less than what many investors expect.
Nevertheless, he says he expects the legislative backdrop to be favorable for markets. J.P. Morgan Asset Management, meanwhile, maintains that it’s too soon to tell if fiscal policy will drive economic growth or just fuel inflation.
Other firms have been critical of overall U.S. policies and, by extension, the new president. Perhaps one noteworthy example is a recent commentary titled “The Road to Trumpsville: The Long, Long Mistreatment of the American Working Class” (PDF), which was recently published by Jeremy Grantham, a co-founder of GMO.
The commentary focuses on factors that have supported a populist movement in the U.S., the election of Trump, and the popularity of other political leaders who are perceived to be able to protect workers from the “rich and powerful.” The commentary highlights how the share of GDP going to workers’ wages hit an all-time low in 2014 while corporate profits as a share of GDP hit a high.
It also discusses the role of money and lobbyists. For example, a study showed that a Congressional bill favored by the public had a 32% chance of passing, but a bill favored by the nation’s richest 10% had a 65% chance of passing.
The study, furthermore, didn’t include data that was available after the Supreme Court ruling on Citizens United that increased the amount of campaign contributions that corporations can make. At a time when workers’ jobs are being displaced by automation, Grantham maintains we need to increase taxes on capital and the wealthy and then increase efforts on worker training and education.
In a companion commentary titled “Is Trump a Get Out of Hell Free Card? No, but he may help us get out of Limbo,” GMO shows how corporate tax cuts in the past haven’t been directly correlated with an increase in after-tax profits.
While the GMO commentary expresses mixed opinions over Trump’s proposals for the U.S. economy, at least one highly regarded investor has been much more blunt in expressing concerns over Trump. In a recent CNBC article, Seth A. Klarman, the 59-year-old value investor who runs Baupost Group, which manages some $30 billion, says euphoria over Trump has resulted in stock valuations soaring to “perilously high valuations” in part because investors are focusing on the potential stimulus resulting from Trump’s proposed tax cuts.
He maintains, however, that tax cuts can be inflationary and increase U.S. deficits. He adds that the 2001 Bush tax cuts fueled inequality. He also adds that the U.S. gave up on trade protectionism a long time ago because the policies don’t work.