Local financial advisors answer questions about the new year, new president

A new year is underway, as well as an inaugural term for America’s new commander in chief, President Donald Trump. What does this mean for investors when it comes to interest rates, market changes, energy and other economic matters? Millennium Private Wealth recently put together a panel of local financial experts to help answer those questions and more. Their annual Roundtable Discussion was held on January 26 at the Daniel Island Club.

Jeff Burton of Millennium served as Master of Ceremonies for the program, and the panelists were James Warfield of Victory Capital, Michael Arundel of PIMCO, Bill Rouse of Millennium Private Wealth, and Craig Colby of Oppenheimer Funds. About 50 people attended the event.

The first topic to come up in the session was the recent presidential election. Warfield noted that this is not the first controversial election that we have had in this country and that we are remarkably resilient. Last year, continued Warfield, we were looking at the possibility of a hard landing in China’s economy, oil prices were tanking, there was an on again off again rate increase discussion, we had a failed coup in Turkey, we had a surprise election, we had fed tightening in the fourth quarter, and we had a fed announcement of a very hawkish outlook. And yet, there were bright spots – the S&P ended up this year at 12 percent, high yield corporate bonds were up 17 percent, emerging markets were up 11 percent, world commodities were up 31 percent, and the bond market was up as well. Warfield felt it would be a huge mistake to ignore that resilience going forward.

It was clear that Donald Trump’s recent victory was foremost in the minds of all the panelists.

Bill Rouse noted that several items on the Trump agenda were positive for the economy. Our corporate tax rate is 35 percent, he said, while the average of rates for the rest of the world is around 23 percent. A reduction in our corporate taxes should result in an increase in GDP, Rouse continued, adding that our current high rates have prompted companies to move operations and capital outside the United States. One proposal to repatriate the money that has been moved overseas, is to tax it at a one-time rate of 7.5 percent. Trump understands that he can identify that tax to go toward specific projects, said Rouse. Assigning it to infrastructure could result in a huge stimulus to the economy. Reductions in the personal tax rate would not make as much difference from a dollar standpoint, but would make people feel better about spending, added Rouse, which would help the economy. As a result, he feels the country could be moving from an interest rate-fueled bull market to an earnings rate bull market.

Michael Arundel believes that Congress over the last five years has been accomplishing less and less. Last year, less than 100 bills were passed, which has built a huge backlog of legislation, he said. Arundel is confident that clearing that backlog could have a very positive effect on the economy.

Craig Colby felt that our economy has been driven by monetary policy to the point that the central bankers have very little flexibility left in controlling the economy. He believes legislators need to take some responsibility and focus on fiscal policy. Movement in that direction could be very good for new companies and new markets, added Colby.

All of the panelists believed that the election of Donald Trump represented a huge change in the nature of our government and has created many unknowns.

Looking back in history, Warfield noted that, generally, the stock market did better under Democratic administrations than Republican ones, but that the best performances were under Ford and Clinton. But now Trump has arrived and he is clearly following an atypical path. Because of the disruption of the status quo that he represents, there are going to be many winners and losers and likely high volatility, according to the panelists.

Nearly all the panelists thought that if you had been a passive investor since 2008, you would have done very well in the market, but with the election of Trump, that market is subject to change. Accordingly, the next few years will require active management of your investments.