Opinion: Beware of the ‘Trump dump’ in stocks as rally peters out

MarketWatch | 1/12/2017 | Thomas H. Kee Jr.
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Part of Donald Trump’s fiscal policy targets mainstream America, not asset classes such as the stock market, bond market and real estate as monetary stimulus does.

The stock market has rallied since the presidential election on expectations fiscal-stimulus policies proposed by Donald Trump will benefit the economy. That might be justified, but that doesn’t mean the stock market can continue to rally in the short run.

Influences - Fiscal-policy - Improvements - Monetary-policy - Stimulus

Longer-term positive influences from fiscal-policy improvements, instead of monetary-policy stimulus, are clear. Still, those positives won’t be immediate.

Part of Trump’s fiscal policy targets mainstream America, not asset classes such as the stock market, bond market and real estate as monetary stimulus does. That is largely why fiscal improvements can have lasting influence, though they take a long time to be realized.

Groundwork - US - Manufacturing - Jobs - Time

Laying the groundwork for new U.S. manufacturing jobs takes time; putting money in the hands of working-class Americans takes time; and getting them to spend more aggressively and invest that money takes even more time. That is sustainable, whereas monetary policy stimulus is not. So there is a huge added value to favorable fiscal policies.

The problem exists in the near, not the long, term. On a near-term basis, the hand-off from monetary-policy stimulus to fiscal-policy improvements can have a material adverse impact on asset classes.

Policy - US - Liquidity - Levels - Demand

Furthermore, when monetary policy is tightening, as it is in the U.S., liquidity levels begin to dry up and fabricated demand influenced by monetary stimulus starts to abate. And when demand levels decline, the tolerance for risk in those asset classes drops along with it.

Therein lies the issue at hand. When monetary policy tightens, it has an immediate negative influence on economic growth, while fiscal-policy improvements take a long time to work their way through...
(Excerpt) Read more at: MarketWatch
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