“The stock market has hit new highs and crypto is back in fashion, so all assets will benefit, right?”
“Get ready for all the new spending, right?”
Not exactly.
The re-election of Donald Trump has triggered notable market responses, often referred to as the “Trump Bump.” But will this bump be different than the first go-round? In Q4 of 2016, the real estate market took a turn, and not for the best. With the bump in stock prices after Trump’s first election win, wealthy purchasers decided to leave their money in the markets and not pay the capital gains tax to cash out and buy tangible goods. We are starting to see the same thing now.
At the same time, Trump’s re-election presents a nuanced set of potential opportunities and challenges across key economic sectors, especially goods, services, and real estate. Here’s a closer look at the possible impacts and how I see them unfolding in the near term.
Goods and Services Sector
Potential Slowdown in Consumer Spending
The increase in stock prices could concentrate capital in financial markets, which may reduce consumer spending on goods and services. As investors focus on high-return opportunities, they may prioritize investments over everyday purchases, potentially slowing growth in consumer-driven sectors.
Inflationary Pressures
Proposed tax cuts and heightened tariffs could fuel inflationary pressures. While this may initially support stock prices, it could also drive-up costs for businesses and consumers. This inflation trend might temper demand for goods and services, particularly if costs begin to impact household spending power significantly.
Impact on Trade
The prospect of higher tariffs, particularly on Chinese goods, poses risks for global supply chains and trade-dependent sectors. Increased costs on imported goods may impact consumer purchasing power and place additional strain on domestic companies that rely on global trade.
Real Estate Market
The real estate market is likely to see mixed effects from the “Trump Bump,” with potential gains and headwinds.
Positive Factors
- Potential Corporate Tax Cuts: If new corporate tax cuts are introduced, they could spur commercial real estate growth as businesses seek expansion opportunities.
- Banking Deregulation: Possible regulatory adjustments may make mortgages more accessible, potentially encouraging growth in both residential and commercial real estate.
Challenges
- Interest Rate Dynamics: Inflationary pressures could lead to shifts in Federal Reserve policy, possibly raising borrowing costs, which could cool the housing market if mortgage rates increase.
- Impact of a Strong Dollar: A strengthening dollar, combined with broader economic factors, may deter some foreign investors, who are key players in luxury and high-end U.S. real estate markets.
Regional Variations
The “Trump Bump” may impact different regions in unique ways:
- Growth in Key Industries: Regions with ties to favored industries like energy or finance could see heightened demand and property value increases.
- Challenges in Trade-Dependent Areas: Areas reliant on international trade or immigration may experience difficulties if restrictive policies are enacted.
Economic Implications for Goods, Services, and Real Estate
Stimulus and Growth
Trump’s anticipated focus on economic stimulus could boost short-term growth, which may benefit the goods and services sectors by raising consumer confidence and spending.
Small and Mid-Cap Companies
Small- and mid-cap U.S. stocks could benefit from policies prioritizing domestic growth. Companies primarily operating within U.S. markets might stand to gain if an “America First” approach spurs demand for local goods and services.
Labor Market Concerns
More restrictive immigration policies may lead to labor shortages, especially in sectors like services and agriculture. This could drive wages up, placing additional cost pressures on these industries and potentially leading to higher prices for consumers.
Conclusion
The “Trump Bump” presents a complex landscape for goods, services, and real estate. While market responses and potential stimulus measures could bring short-term benefits, inflationary pressures, trade disruptions, and potential labor shortages introduce risks.
For the real estate sector, the outlook is particularly varied, with regional disparities likely to arise based on local economic drivers and the influence of national policies. As businesses and consumers navigate this environment, staying agile and informed on emerging opportunities and challenges will be essential for adapting to this evolving economy.