LIZ ANN SONDERS: Welcome, everybody, to the Schwab Market Snapshot on this very eventful day, with an election result that defied the odds and certainly the polls. I am thrilled to have join me in the conversation, Mike Townsend—my colleague, vice president of legislative and regulatory affairs in Washington.
Before I turn it over to Mike to get his thoughts on the near-term and longer-term implications, already we’re seeing an extraordinary amount of volatility. But maybe not to the same degree that people might have expected in the overnight market. The S&P futures were halted for a period of time at what they call Limit Down. So it was an extreme early phase of weakness, but when the market actually opened today, we were in positive territory. We do think volatility is likely to persist, but I want to turn it over to Mike now to get some of the policy implications of this. Certainly in the short term of what we can expect over the next month or two. Thanks, Mike, for joining us.
MIKE TOWNSEND: Great to be with you, Liz Ann. Well, I think, you know, right out of the box, President-elect Trump is going to be focusing here in the, in the short term on just organizing his new government. He’s got to figure out who’s going to be in the cabinet. He’s got to figure out who’s going to be on his staff. He’s got to start to think about what kind of policy priorities and in which order he wants to take on things when he takes office.
But at the same time as that’s happening, the current Congress is coming back to Washington next week, and they’ve got a big deadline facing them. That’s December 9, which is when the current agreement to fund government operations and keep the government open and operating expires. So Congress will be focused on that in the immediate term. And what I think will happen is that they’ll come to a short-term agreement, maybe kick the can down the road to February—when the new Congress has taken office, President-elect Trump has taken office—and they’ll deal with the issue in a longer term at that time.
But right around that deadline, early December, is another big potentially market-moving event. And that’s the next meeting of the Federal Reserve. So let me turn it back to you to say, what does the election outcome mean for that meeting of the Fed?
LIZ ANN: Right. I mean, the Fed meeting sure did take a backseat quickly to what happened in the election, but I do think it’s probably the next area for focus. Now, in terms of the futures market, which is where we get expectation odds for the next meeting and rate hike, going into this election result we were somewhere in the mid-80% range in terms of expectations that the Fed would move at the December meeting. That didn’t drop all that much, kind of into the 75% range. So, still, clearly, the market is betting on a hike. I think what it ultimately comes down to is not just market activity, which is a factor in tight or loose financial conditions. So if the market continues to be volatile and financial conditions tighten, which you would see not only in market volatility but potentially market weakness, you could see it on the fixed income side in credit spreads, what happens to the U.S. dollar. And then, of course, we have one more jobs report between now and then. That could give the Fed pause, but at this point, the market is still telling you that a rate hike is likely.
But, Mike, I want to turn it back to you, and let’s go beyond December. Let’s move post-mid-January, after the inauguration. Give us a sense of what you think Trump’s priorities are, and then how Congress will work with or potentially against those priorities.
MIKE: Well, Liz Ann, the other big development, of course, on election night was that Republicans did retain their majorities in both the House of Representatives and the Senate. So come January, they’ll have control in the House, the Senate and the White House. And that will afford them the opportunity to really control the agenda. The decision-making that’s going to have to come to is how to use that advantage. There are a lot of priorities that have been put out there during the campaign, whether it’s build a wall; or repeal and replace the Affordable Care Act; tax cuts, which I think are much more plausible in 2017 than they were before the election—there are a lot of things that Donald Trump has outlined that he wants to do. One thing I’ll be watching for in early 2017 is the possibility of a big infrastructure spending package. It’s something that Donald Trump has talked about on the campaign trail. It’s something that has quite a bit of bipartisan support. I think people on both sides of the aisle in Congress understand that we need money to spend on bridges and roads, and getting our infrastructure into shape—and there’s, obviously, some economic stimulus and some job creation that could come out of that. So I’d look at that as a possible winning first issue out of the gate for the new president.
LIZ ANN: And those are all important issues for the economy, and you could argue some of them are economic positives, some are potentially economic negatives, and some, I think, are a little bit of both. I think tax cuts and regulatory changes could be a positive. Infrastructure, ostensibly, also a positive, but the deficit hawks, I think, would take issue with that. And then on the more negative side would be if the top priority is associated with sort of pro-tariffs, anti-trade. So there is a lot to digest between now and then.
This is one of much commentary we will be putting out there, both in written and video form. You can find everything on the Insights and Ideas tab of Schwab.com, so please keep an eye on that. We certainly thank you for tuning in today. We appreciate your attention. And own your tomorrow.