Trump is back and it looks like Republicans are back in Congressional control.
The last time we had this slate, Republicans cut corporate taxes and I expect that will be the case again. The big change is that this time, the US is already running a 7% deficit of GDP and the S&P 500 is trading with a 24 p/e.
Does anyone care? The bond market seems to. We get a 30-year auction today and yields are up 18 bps to 4.63%.
That same kind of fiscal agenda along with tariffs is strongly boosting the US dollar today while the Mexican peso is down 2.4%. The trick with Trump is sorting out what's rhetoric and hollow threats and what is real. He often makes big pronouncements and threats, only to walk them back.
On the campaign trail, Trump said if re-elected "incomes will skyrocket, inflation will vanish completely, jobs will come roaring back, and the middle class will prosper like never before".
Eyes will certainly be on China as it's very likely to face tariffs. Beijing may try to counter that with stimulus but that's a big challenge.
Europe will also be hit with tariffs at a time when it's already struggling and doesn't have a fiscal lever to pull. In addition, defense is likely to be a big cost/challenge as the Ukraine war takes a different turn.
I think the biggest question is the relationship between bonds and stocks though. Is there a level of yields that hurts stocks? Obviously there is but what is it? How does it weigh against tax cuts and tariffs?
Those questions won't be answered today. Momentum is the trade of the day.