November 18, 2016

The Trump Effect

by Anthony Wright

Now that the presidential election is over (and none too soon), much uncertainty over the philosophical approach on economic and fiscal policy over the next four years has ended. With Donald Trump’s surprising victory, we can look forward and begin to forecast expected policies and how these policies will impact the fenestration industry.

We may have already begin to witness the Trump Effect take place over the last week:  10-year treasury notes rose to their highest levels, driving mortgage rates to 4%, and the strength of the dollar rose 2.6% against an index of six major currencies. Simultaneously, October housing starts jumped to a nine-year high, adding to reason to be optimistic. As we look toward the next year and beyond, I predict we can expect a pro-growth, pro-business, pro-energy focus that should result in high capital flows, decreased regulation, and hopefully, broad economic gain. 

Here are the three effects I anticipate the Trump admninstration will have on the housing market and indirectly on fenestration industry.

  1. Higher Mortgage Rates – Trump’s fiscal policies, whether they be trade, tariffs, or tax-cuts, will result in a stronger dollar and prompt the Fed to move quickly to rates interest rates. As interest rates rise and investors find a safe harbor in the United States currency for a guaranteed return on their money, we should see a spike in capital into the country. Stay tuned for future forecasts on the Fed and the dot plots to see just how fast and how high we can expect the Fed to raise the Fed Funds rate. One thing is for certain: the December FOMC is almost a 100% guarantee for the Fed to start raising rates.
  2. Decreased Regulation – On the night of the election, Democratic strategist James Carville bemoaned, “Dodd-Frank is dead!” While I doubt that the Trump administration will go as far as to repeal all of Dodd-Frank or Obamacare for that matter, I do believe there will be certain provisions of these regulations that are scaled back to appeal more to smaller businesses and become more affordable through increased competition. Specifically, I expect the Trump Administration to focus eventually on Housing Finance reform and address the conservatorship of Fannie Mae and Freddie Mac (many of the inner circle of Trump supporters such as Carl Icahn and Bruce Berkowitz are investors in Fannie and Freddie). Bottom-line: It should become easier to get a loan and buy a home. Trump’s middle name is “Risk.”  
  3. Pump Baby, Pump – With the Trump Administration, I fully anticipate global warming initiatives will become an afterthought while the oil and gas industry can anticipate the Republican Congress to move quickly to get the Keystone XL Pipeline and other pro-energy legislation back on the docket and on President-Elect Trump’s desk for signature. This change direction is good news for the embattled oil and gas industry—and not so much for renewables. The net result should be lower regulatory pressure for carbon-based emissions and support for the fossil fuel industry in the executive office—a freedom those industries haven’t had for the past eight years.
With lower corporate taxes and full employment, we should expect to see a rise in wages and the over sentiment shift from uncertainty back to economic growth and investment. During the Trump Administration, it is entirely likely that we will see the Millennials shift from rental to home ownership due to rising interest rates and lower credit restrictions and remodeling investment due to lower taxes and a restrained fiscal policy.

We will see how the Fed and the Trump Administration navigate higher interest rates and whether the Fed moves too soon and too high, causing the economy to cycle into a recession. At the moment, these are just guesses on my part but I fully anticipate that these effects are sure to happen given the surprising turn of events over the past week or two since the election. Get your popcorn ready!
What do you think? Contact me directly at Anthony.Wright@Quanex.com.
 
 

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Posted: November 18, 2016 by Anthony Wright Filed under: government, economy, fenestration