Investing in the Trump era: Piedmont investment and advisors' ISAAC Green shares the best strategies to maximize returns.
Green points to four key markers as post-election drivers: taxes, regulation, infrastructure spending, and reflation. "If President Trump's agenda is carried through, we believe the new period will be characterized by decreasing globalization and free trade; stimulative fiscal policies; and increased U.S. growth, higher inflation, and rising bond yields," he says.
Green adds that tax reforms--which could bring more competitive corporate rates, overseas cash repatriation, and a simplified personal tax code--could provide a boost to the economy. Investors are expecting an easing of regulatory burdens and a more business-friendly operating environment, something Green views as being advantageous to some sectors. Further, he notes that Trump's proposed across-the-board tax cut should benefit equities over bonds.
Sectors that Green believes could benefit from Tramp's presidency include:
* Banks and other financial institutions: These are poised to benefit from a strong economy with higher, short-term interest rates and faster loan growth; an expected scale-back of post-financial crisis regulation; and lower corporate tax rates.
* Infrastructure: Public spending on infrastructure as a share of GDP is near all-time lows. However, Trump has pledged to improve these conditions over the next decade, by introducing legislation that will ultimately encourage $1 trillion in infrastructure investments. Green suggests that infrastructure spending could spur growth in engineering and construction; commodities, such as steel, copper, cement, asphalt, and crushed aggregates; and industrial machinery.
* Defense companies: Such firms can also gain a huge boost from the Trump administration's and the Republican-led Congress' plans to meaningfully boost the defense budget.
* Domestic energy: Supported by fossil fuel development--including domestic drilling and fracking--producers in this sector can perform extremely well. Green maintains that Trump promised an industrial revolution driven by an anti-regulatory environment that's heavily focused on traditional energy sources. Moreover, the administration plans to roll back policies such as federal tax credits that favor solar power, wind energy, and other renewables.
* Technology companies: Those in this sector with a significant amount of cash on their balance sheet can benefit from the relaxation of cash repatriation levels.
More broadly, Green is positioning his Durham, North Carolina-based firm to harness the pro-business climate and leverage the uptick in the domestic economy. He also maintains, however, that a cautious approach may prove best. "Policy uncertainty, trade wars, and protectionism remain the key risks. The potential for aggressive Fed tightening in response to higher inflation can introduce volatility in the markets," he says.
A few weeks into the new presidential term, all this remains highly speculative. As Green notes, "The politics of getting things done in Washington can be an overhang on the implementation timeline for any new president's agenda. For that reason, we think the best way to invest remains much the same as always: through high-quality, profitable companies with growing dividends that have above-average exposure to cash-flow growth."
EDITED BY DEREK T. DINGLE @DTDINGLE
RELATED ARTICLE: 5 Books to get you on the road to financial freedom.
1 Living Well, Spending Less: 12 Secrets of the Good Life, by Ruth Soukup Who doesn't want to live the good life? This book is packed with tips on how to spend smart without compromise. If you've ever felt like your budget (or life, for that matter) has spiraled out of control, these step-by-step instructions will no doubt get you back on the right track.
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Money Management From Grade School to Grad School by Ernest Burley Jr. Burley, a certified financial planner, provides an easy-to-digest action plan for what to teach your children and when. His book delivers valuable and effective money lessons, strategies, and exercises parents can implement immediately, regardless of a child's age. This is one of the best books I've read for parents, who want to raise their children to make good financial choices.
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|Date:||Jan 1, 2017|
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