So Long Yellow Brick Road
Now that tariffs are starting to bite, the September Eye on the Market takes a close look at the latest from the front lines of the Trade War.
Imagine the excitement at the Heritage Foundation and the American Enterprise Institute after Trump’s election. Finally, a President to restore the pillars of Reaganism: pro-business policies and court appointments, corporate tax cuts and deregulation1. For Heritage and AEI, this couldn’t come soon enough: after all, during the Obama years, the ease of starting a new business in the US fell relative to the rest of the world. The early payoff for equity investors was substantial (see yellow brick road, below), and there were signs of renewed dynamism in US manufacturing jobs. Ever since Trumpism showed its true colors on economic and trade policy, the S&P 500 index has traded in a volatile/sideways fashion and manufacturing dynamism has stalled I have no reason to think this will change before the election; if so, it makes sense to range-trade equities around highs and lows seen since January 20182.
Source: Moody's. Q4 2018.
1 Heritage/AEI on benefits of lower taxes and deregulation: “Tax Reform for Investment and Jobs” (August 2017, Heritage); “A Guide to Tax Reform in the 115th Congress” (February 2017, Heritage); “Overregulation drags down business” (February 2017, Heritage); and “How much can tax reform affect economic growth” (AEI, November 2017).
2 The recent 3-month annualized volatility of the stock market has been around 14%, which is almost exactly equal to average volatility since 1958; lower equity market volatilities in 2003-2006 and 2016-2018 were aberrations.
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