Predicting what the financial markets will do in President Trump's economy has vexed many market strategists. Last week at an event where many investment managers voiced bearish views, market strategist Ed Yardeni presented a subtler take to today's financial markets.
"I've never seen or read about a president who has been as bullish and bearish -- at the same time," Yardeni told attendees. "For all we know there will be more special prosecutors and possibly impeachment."
Nonetheless, the president's effect on almost all sentiment indicators like consumer confidence has been positive. Depressed Republicans "may not like Trump, but they were glad" he was elected.
A 21 percent corporate tax rate has "made the U.S. a great place to do business," Yardeni said. But the president has also displayed antagonism towards certain industries like health care while upsetting other businesses dependent on foreign trade.
America's government has grown to be very large and Trump is appealing to people who want the government to do something, Yardeni continued. No president has ever tried to stimulate the economy at this late stage in the economic cycle, so we are in uncharted territory.
Nine years ago, few would have expected that the U.S. economy would emerge from the financial crisis doing better than anyone else. "Maybe the global economy isn't doing as badly as people think," he said.
Something "funky is going on with the yield curve," as the 10-year Treasury seems to rising a little but still remains "stuck around 3 percent." Investors who have racked big gains in equities may be taking a few chips off the table and buying bonds, a factor that could be restraining the 10-year from reaching what many think is fair value in the 4 percent area.
Federal Reserve Board chairman Jerome Powell needs some room to slash interest when the next recession hits. That could turn out to be a luxury other central bankers in the developed world won't have in their tool kit.
"The next bear market will occur when the market gets wind that the next recession will occur," Yardeni told attendees. At present, he doesn't see a recession on the horizon. It is possible maybe we continue to have rolling recessions like the energy bust in 2015 and the mall calamity in 2017 without two consecutive quarters of negative GDP growth for a while.
Should we be petrified about all the debt? "I don't know what to tell you," Yardeni conceded. People have been predicting a debt disaster for decades. "But somebody is buying all this debt."