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One Big Wild Card for Stocks

Tax cuts, regulatory reforms, fiscal stimulus – many of the Trump administration’s economic proposals have been embraced by investors as proven ways to grow the economy. A major exception is potential changes to trade policy. A recent survey by Strategas Research revealed that trade is the by far the biggest source of uncertainty and angst for investors as they contemplate the market outlook.

Globalization – for all its benefits and drawbacks has been a boon to corporate profits, as it allowed companies to boost exports and take advantage of lower input costs overseas. This dynamic is hinted at in the chart below, which shows corporate profits rising as a percentage of GDP and wages falling. Ultimately, it is corporate profits that drive the stock market higher or lower.

Many proposed changes to trade are aimed at benefiting workers and increasing wages. Whether that can be accomplished without hurting corporate profits remains to be seen. Accordingly, Wall Street will pay very close attention as the Trump administration gets more specific on trade policy. As Ned Davis Research, Inc. indicates, “US trade protectionism may boost economy short-term, but benefits would be quickly eroded by tit-for-tat responses”.



Source: Hefren-Tillotson, Ned Davis Research

This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usa http://www.ndr.com/ge. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

Investment Advisory Team

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