Last night’s national election was like watching the World Series! It certainly went to the 10th inning of game seven just like the Cubs and Indians last month! I had to ultimately go to sleep last night and wake up at 2am to see who won. I know this is very emotional for many voters – some happy and some sad. I am careful to not be political in these newsletters and try to interpret the events and the possible consequences objectively. I do know this; Mr. Trump is the President elect, not the King elect. No president can come into office and simply change policies swiftly. Our political system is strong because despite campaign promises, new presidents come into office with a constrained ability to enact their agenda and as I understand things, this is a strength of America, not a weakness.
Last night, as Mr. Trump looked like he would possibly win, Equity futures were dropping around the world precipitously. Today, the Dow 30 Industrial Average is up 168 points at the time I write this. This proves how day to day fluctuations can be false readings into the future.
The economic reality of the moment is we just had a pretty good third quarter earnings report from corporate America. We saw the return of revenue growth which has been absent since the fourth quarter of 2014. As a matter of fact, S&P 500 profit margins are near record highs and would have eclipsed record highs if the energy sector was excluded.
One thing that our new president will have to address is the United States deficit and debt. Tomorrow, on Thursday, November 10, 2016, the U.S. Treasury Department will release the budget data for the first month of Fiscal Year (FY) 2017, which began on October 1, 2016, and will end on September 30, 2017. As a reminder, the federal budget deficit in FY 2016, which ended September 30, 2016, was $587 billion – $148 billion higher than in FY 2015. The $587 billion deficit in FY 2016 was equal to 3.2% of GDP, up from 2.5% of GDP in 2015. FY 2016 marked the first time since FY 2009 that the deficit increased from one year to the next. On the federal debt, the government in FY 2016 paid a net interest of $240 billion (the all-time high was $252 billion in 2008). This current payment is only 1.3% of GDP, but if interest rates rise and the principle continues to increase, the CBO projects that net interest payments will rise to $712 billion by the end of FY 2026, doubling its size relative to GDP. As it stands today, the only way to change the course of the debt and the deficit over the medium and long term is to cut spending, raise taxes or raise tax revenue by an expanding and growing economy. This new president will have his hands full because no one wants to see cuts in Social Security, Medicare and/or Medicaid.
Sorry to bore you with those statistics, but many people don’t realize the real numbers and the challenges they represent. The 2017 Buckaroo Calendars are being prepared for mailing. Jenny and Rose will be sending them out in the next month. We wish you a Happy Thanksgiving and Holiday season and as always, thank you for your business – Mark
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Economic forecasts may not develop as predicted. Some of this research material has been prepared by LPL Financial. All indices are unmanaged and may not be invested into directly. Referenced material: LPL Research Weekly Economic Commentary & LPL Research Weekly Market Commentary ,both dated November 8, 2016. Approved Tracking #: 1-554226.