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Gary Shilling

The Trump Trade Arrived Several Years Too Soon

Fiscal stimulus, if it comes, will take two to three years before it spurs the economy.
The Trump Trade cools.

The Trump Trade cools.

Photographer: Bryan R. Smith

The initial reaction by investors to Donald Trump’s election as U.S. President six months ago and continued Republican control of Congress was nothing short of euphoric, overdone and possibly several years too soon. They assumed that literally overnight, huge tax cuts, massive deregulation and substantial fiscal stimuli would propel rapid economic growth, a surge in corporate profits and faster inflation. So stocks leaped, with the S&P 500 Index jumping 12 percent between election day on Nov. 8 and March 1. Commodity prices also jumped along with the dollar amid expectations for quicker growth and major protectionist measures under Trump’s “America First” plans.

Especially hard-hit in the weeks after the election was the Mexican peso as Trump reiterated his plan to build a wall along the southern U.S. border. Emerging-market stocks and bonds also suffered, especially those with huge dollar-denominated debts as their falling currencies would make those obligations increasingly difficult to service. Investors judged that these financial woes swamped the positive effects of developing-country currency weakness and U.S. economic growth on their exports.