Daniels Trading is nonpartisan and does not endorse political candidates. The purpose of this blog post is to provide objective, unbiased information on what we believe could happen in the markets depending on the outcome of the election or how the election may impact the markets. The content is not intended to convey a preference or state a position in support of any candidate, and the sentiments expressed do not necessarily reflect the viewpoints of our team members.
On the economic front, President Donald J. Trump’s first term was an active one. Consistent growth fostered record-low unemployment, robust consumer spending, and record highs in the U.S. stock markets. Until the onset of 2020’s coronavirus (COVID-19) pandemic, surges in American commerce and industry sent many futures markets into uncharted territory.
According to the Trump administration, deregulation and tax cuts made America’s pre-coronavirus economy its strongest ever. If Trump wins a second term, can we expect more of the same? No matter the answer to this question, the financial markets will be watching the developments very closely.
More Tax Cuts?
On the campaign trail in 2016, Trump made cutting taxes a central theme of his platform. In December 2017, rhetoric became reality when he signed the Tax Cuts and Jobs Act (TCJA) into law. The TCJA represented the largest tax reform in more than 30 years, reducing the corporate tax rate to 21 percent and boosting standard deductions for individuals.
Although the TCJA remains a controversial policy, the White House lauds its achievements. In a December 20, 2019 press release, the Council of Economic Advisers (CEA) reported that the TCJA was responsible for two years of robust business, investment, and labor market growth.
From Dec. 22, 2017 to Dec. 20, 2019, the leading American equities indices and related futures markets (E-mini DOW, E-mini S&P 500, and E-mini NASDAQ) experienced prolonged rallies:
| Market | Dec. 22 2017 | Dec. 20 2019 | % Gain |
|---|---|---|---|
| DJIA | 24,754 | 28,455 | 14.9% |
| S&P 500 | 2683 | 3221 | 20.1% |
| NASDAQ 100 | 6465 | 8678 | 34.2% |
Are more tax cuts in the cards if Trump is elected for a second term? Recent campaign promises suggest that “Tax Cuts 2.0” is in the works. Trump’s own words on the matter include:
- “We’re going again for a big middle-income tax cut.”
- “We are going to be cutting taxes further, and that includes business taxes, but it includes especially middle-income taxes. We are low taxes. We are going to continue to be low taxes.”
As of this writing, the guiding tenets of Tax Cuts 2.0 remain largely a mystery. Nonetheless, a few ideas being floated are a reduction in the capital gains tax, more corporate tax cuts, and extended middle-class tax benefits. If these ideas come to fruition, the U.S. equities index futures markets will be poised to move higher if trader optimism increases.
Continued Deregulation
In addition to reforming the U.S. tax code, Donald Trump ran for office pledging sweeping deregulation. During a 2016 New Hampshire town hall event, Trump blamed existing regulations for stifling business, stating that “70 percent of regulations can go.”
Once in office, Trump proceeded to eliminate regulations wherever possible. The administration’s successes in this area were outlined in an October 2019 press release from the Department of Budget & Spending:
- 8.5 regulations were cut for every new rule.
- Regulatory costs were reduced by approximately $50 billion.
- The Governors’ Initiative on Regulatory Innovation was created to extend reforms to the state and local levels.
The administration’s mass deregulation had an impact on industries across the board—specifically banking, energy production, and farming. In a 2019 brief from the CEA, cutting excess governmental red tape was credited with promoting maximum employment and facilitating consistent economic growth.
If Trump is elected to a second term, more deregulation is a certainty. Although the benefits of such policies will be hotly debated, the equity and commodity futures markets are likely to respond positively. The reduction or removal of existing rules is likely to foster economic growth and drive equities valuations higher―all while boosting the commercial and industrial demand for commodities. These factors point to bullish long-term price action in equity index futures and commodities such as crude oil.
Politics Remains a Primary Driver of the Futures Markets
Should Donald Trump win a second term as POTUS, tax cuts and deregulation will be key parts of an expansionist economic policy. If this policy is successfully implemented, the stage will be set for the equities index and commodity futures markets to rally. Of course, COVID-19, Fed monetary policy>, and other external factors will greatly influence the rate of U.S. prosperity.
Throughout Trump’s first term, the American stock markets have been targeted by opportunistic traders and investors around the globe. If you’re interested in getting in on the action, Daniels Trading’s free guide Introduction to E-mini Stock Index Futures is a great place to begin.
