For most of last year, Wall Street was certain that a President Trump would be bad for business. The financial industry invested almost exclusively in Hillary Clinton’s campaign, while markets recoiled at every improvement in her opponent’s prospects.
And then Trump won. And he delivered a victory speech that was free of calls for dissolving the judiciary — and full of reassuring pablum about national unity.
And the markets, in their infinite rationality, realized that Trump never really wanted to roll back global trade and the liberal international order. “Surely, the president is sincere about the parts of his platform that I like, but insincere about all the ones I do not,” the utility maximizers coldly reasoned. Soon, the Dow hit 20,000.
To be fair, Trump did reward Wall Street’s optimism. The president appeared to pick half his cabinet from the guest list at Lloyd Blankfein’s birthday party, while promising to cut the taxes of his fellow diners at Manhattan’s ‘21’ Club. Meanwhile, his transition team advertised a supply-side agenda, with a side of infrastructure stimulus. Further, whatever interest Trump may have had in challenging entrenched corporate interests seemed to dissipate the second said interests kissed his ring: The president went into a meeting with pharmaceutical lobbyists vowing to negotiate down the cost of drugs — and left vowing to keep big government from stifling innovation with price controls.
But while Trump seems less than sincere in his economic populism, he appears to be quite genuine in his nativism. His first weeks in office have featured radical immigration restrictions enacted via executive order, vows to repatriate global supply chains, and noises about defunding the United Nations.
Now, Goldman Sachs is starting to remember why it was once “with her.”
“Following the election, the positive shift in sentiment among investors, business, and consumers suggested that the probability of tax cuts and easier regulation was seen to be higher than the probability of meaningful restrictions to trade and immigration,” a group of Goldman Sachs economists, led by Alec Phillips, wrote in a note late last week. “One month into the year, the balance of risks is somewhat less positive in our view.”
Phillips cites three reasons for his bank’s fading enthusiasm for Trumpism.
First, the GOP’s struggle to chart a course for Obamacare repeal “does not bode well for reaching a quick agreement on tax reform or infrastructure funding.”
Second, the bank remembered that Senate Democrats exist.
“While bipartisan cooperation looked possible on some issues following the election, the political environment appears to be as polarized as ever, suggesting that many issues that require bipartisan support are likely to face substantial obstacles,” Phillips wrote. “While we have not expected a sweeping overhaul of regulation in any of these areas to become law, recent developments lower the probability somewhat that even incremental changes could pass in the Senate.”
Finally, there are the “recent developments,” themselves, which “serve as a reminder that the president is likely to follow through on campaign promises on trade and immigration, some of which could be disruptive for financial markets and the real economy.”
For now, Wall Street remains nervously optimistic. Trump’s presidency still offers an excellent chance of corporate tax cuts, and all-but-certain savings on regulatory compliance. But the fact that it also offers Steve Bannon a seat on the National Security Council is causing a little heartburn in America’s C-suites.