It's a good thing that Wall Street analysts didn't finish up their year-ahead outlooks prior to the U.S. Presidential election, because in the words of Deutsche Bank AG's Chief U.S. Economist Joe LaVorgna, Donald Trump is "a game changer."
At the end of each year, Wall Street firms publish outlooks for the next 12 months. While it is already difficult to forecast what the S&P 500 Index, for instance, will be trading at in roughly 365 days, having a regime change in Washington makes things even more complicated. Just ask Goldman Sachs Group Inc., which was stopped out of 5 of its 6 top trade ideas last year before Valentines Day.
"We can't recall a time when a change in leadership in Washington had the potential for such large and diverging effects on the U.S. economy," Bank of America Merrill Lynch analysts said in a recent note.
Strategists are thus doing their best to hedge their calls, with JPMorgan Chase & Co.'s equity outlook saying, "Due to uncertainties, these impacts [Trump's campaign promises] are not incorporated into our base case earnings forecast until there is more clarity around which policies will be emphasized and/or are politically feasible."
But given the market's forward looking nature, that uncertainty hasn't stopped a number of banks from at least trying to calculate what a Trump administration will do to their respective areas of coverage. Here are a few highlights.
U.S. Dollar
One of the biggest winners since the election has been the U.S. dollar. While many on Wall Street had been forecasting the dollar's demise if Trump were to take the White House, the opposite has been true. Now, due to factors including the prospect for more fiscal spending and a potential tax holiday, analysts are changing their minds. Here's a look at what some banks are saying:
BNP Paribas SA: "We continue to be bullish on the U.S. dollar following the U.S. presidential election. The key implication of Trump’s victory is that his proposed expansionary fiscal policy is likely to push U.S. yields up and steepen the curve. As a result, USD strength has further to run, in our view, although the speed of its rise is likely to differ versus the different G10 currencies." The team adds that they are most bullish on the dollar vs the Japanese yen, with one of their models targeting a rise above 120 for the currency during 2017. It is currently trading around 115, after sitting below 105 before the election.
Citigroup Inc.: "We've got euro dollar falling just below parity, as consistent with the rate differentials very much moving in favor of a weaker euro. I mean, it's largely driven by the U.S. side of things and a changing policy mix really gets you to a stronger dollar environment." Bank of America Merrill Lynch: "The Trump electoral victory is likely to lead to substantial U.S. fiscal easing, helping push the U.S. dollar up and yields higher," the firm writes, adding that it expects the Euro to trade at 1.02 vs. the dollar by mid-2017 and the yen to hit 120.
Of course, there are also signs that the "long U.S. dollar" trade is getting crowded.