Economy Not as Strong as Consensus Believes
Even with a possible stimulus package, we think the economy will be hard-pressed to grow much more than 1.5% to 2.0% in 2017.
Markets this week seemed particularly confident that better economic news was just around the corner. Despite a lack of many definitive proposals, markets seemed sure that the combination of tax cuts and increased infrastructure spending is a done deal. This week, there was new hope that the regulatory burdens that so many businesses had complained about would be greatly diminished. This new optimism was based on the appointment of more antiregulation proponents, including Andrew Puzder, a minimum-wage increase opponent, to Labor; and Scott Pruitt, a critic of environmental laws, to the EPA.
We don't know if there was a direct cause and effect, but U.S. markets seemed excited about the news. Most major equity markets, even including emerging markets, moved ahead at about a 3% clip since last Friday's close, at least in U.S. dollar terms. However, going by Election Day, the U.S. is the standout performer with the S&P 500 up almost 6%. European markets expanded just about 2%, although much of that underperformance is due to an increase in the dollar. Emerging markets are bringing up the rear since Election Day, losing about 3%. That gap was wider, but better import-export data out of China this week brought even emerging markets back to life.
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