Former U.S. President and Republican presidential candidate Donald Trump holds a rally in advance of the New Hampshire presidential primary election in Rochester, New Hampshire, U.S., January 21, 2024. Mike Segar | ReutersMarkets are “fairly complacent” about the risks of a second Donald Trump presidency, which could trigger a “tantrum” in long-duration bond markets, according to Guillermo Felices, principal and global investment strategist at PGIM.Wall Street has enjoyed a remarkable rally since November last year, culminating in both the Dow Jones Industrial Average and the S&P 500 hitting record highs on Monday.Much of the market focus remains on short-term economic data and on what it means for the Federal Reserve’s potential interest rate cutting path this year.Bullishness in risk assets is driven largely by the consensus that the Fed will begin cutting rates rapidly in the early part of the year, and that the U.S. economy will manage a “soft landing” — bringing inflation back to the Fed’s 2% target without triggering a recession.Some analysts are also looking ahead through a fiscal and geopolitical lens to November’s U.S. presidential election and beyond.Trump’s tax reform bill in 2017 cut the top corporate tax rate from 35% to 21%, and he has vowed on the campaign trail to lower it further to 15%, if he is elected to a second spell in the White House.Risk of a ‘duration tantrum’ in bond marketIn an email to CNBC on Monday, Felices said one of the developments that limited PGIM’s optimism versus the market consensus for an economic “soft landing” in the U.S. was that the market has been “fairly complacent about the risks associated with a Trump win, fiscal expansion (e.g. tax cuts, defence budgets) and military conflict escalation.””A Trump presidency we think would be positive for the economy in the sense that there would be probably more fiscal stimulus through state tax cuts — the question is what that stimulus does to the bond market, and what’s the backdrop for the economy?”He explained, “If the economy is still very strong and it doesn’t really require that further fiscal stimulus, the bond market could start getting nervous about debt sustainability and higher interest rates, and therefore we could see higher yields, a bit of a duration tantrum, and risky assets wouldn’t like that.”The U.S. economy has proven surprisingly resilient in the face of a steep increase in interest rates to combat high inflation over the last two years, with growth and employment remaining robust. Thursday’s fourth-quarter GDP growth estimate will offer further insight into how activity is faring, as the Fed tries to wrestle price increases back to target.”If the backdrop is one where the economy is a lot weaker, and it deserves that extra fiscal push, then I think the market would be okay and would ha …
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[mwai_chat context=”Let’s have a discussion about this article:nnFormer U.S. President and Republican presidential candidate Donald Trump holds a rally in advance of the New Hampshire presidential primary election in Rochester, New Hampshire, U.S., January 21, 2024. Mike Segar | ReutersMarkets are “fairly complacent” about the risks of a second Donald Trump presidency, which could trigger a “tantrum” in long-duration bond markets, according to Guillermo Felices, principal and global investment strategist at PGIM.Wall Street has enjoyed a remarkable rally since November last year, culminating in both the Dow Jones Industrial Average and the S&P 500 hitting record highs on Monday.Much of the market focus remains on short-term economic data and on what it means for the Federal Reserve’s potential interest rate cutting path this year.Bullishness in risk assets is driven largely by the consensus that the Fed will begin cutting rates rapidly in the early part of the year, and that the U.S. economy will manage a “soft landing” — bringing inflation back to the Fed’s 2% target without triggering a recession.Some analysts are also looking ahead through a fiscal and geopolitical lens to November’s U.S. presidential election and beyond.Trump’s tax reform bill in 2017 cut the top corporate tax rate from 35% to 21%, and he has vowed on the campaign trail to lower it further to 15%, if he is elected to a second spell in the White House.Risk of a ‘duration tantrum’ in bond marketIn an email to CNBC on Monday, Felices said one of the developments that limited PGIM’s optimism versus the market consensus for an economic “soft landing” in the U.S. was that the market has been “fairly complacent about the risks associated with a Trump win, fiscal expansion (e.g. tax cuts, defence budgets) and military conflict escalation.””A Trump presidency we think would be positive for the economy in the sense that there would be probably more fiscal stimulus through state tax cuts — the question is what that stimulus does to the bond market, and what’s the backdrop for the economy?”He explained, “If the economy is still very strong and it doesn’t really require that further fiscal stimulus, the bond market could start getting nervous about debt sustainability and higher interest rates, and therefore we could see higher yields, a bit of a duration tantrum, and risky assets wouldn’t like that.”The U.S. economy has proven surprisingly resilient in the face of a steep increase in interest rates to combat high inflation over the last two years, with growth and employment remaining robust. Thursday’s fourth-quarter GDP growth estimate will offer further insight into how activity is faring, as the Fed tries to wrestle price increases back to target.”If the backdrop is one where the economy is a lot weaker, and it deserves that extra fiscal push, then I think the market would be okay and would ha …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]
