Taxes, Tariffs, and the Oil Patch
Now that we know he will be President, what will Trump and the Republican Congress do that will affect our investments?
First tariffs. Increasing tariffs is a terrible idea for the economy as a whole, and if put in place on most items, would not only slow economic growth, they would increase prices on all goods affected. Based on Trump’s first term, tariffs will be used mainly as threats or bargaining chips. But if a general tariff wall is built, it will hurt consumers as well as the businesses we own.
On taxes, it’s mainly about what won’t happen–the tax cuts put in place in 2017 and scheduled to expire in 2026, will be preserved for at least the next ten years, if not longer. This will mainly affect taxes paid by the companies we own since the corporate tax rate was expected to rise.
Republicans might try for additional tax cuts and they have something to offer blue state Senators to get it done – the full deductibility of state and local taxes (referred to as SALT deductions). It would be hard for Democrats in high tax states to resist bringing back that deduction in exchange for other tax cuts. That’s our best guess regarding additional tax cuts.
Inflation has moderated, but prices remain high, which is what voters notice. One way to bring down prices across the board would be to encourage more energy production, which would bring down oil prices. High energy prices are a component of all goods and services, so prices could fall or at least stop increasing.
The expenses paid by the companies we own are also pressured by high energy costs. Lower prices will help to increase cash flow at these companies, which means more hiring and higher stock prices.
Deregulation could help to soften the damage done by tariffs if it reduces the costs of doing business. The stock market would respond well to any effort to reduce regulation of businesses. Trump’s first term suggests that something will be done in this area.
So far, the stock market agrees with our sanguine view of Trump policy. 2024 is the best election year performance for the stock market since 1936. And performance on the day following election day was the best in history.
On balance, what we know now about the Trump economic program would be good for the stock market and the economy. We plan to keep clients informed about how this process unfolds in 2025. All comments and questions are welcome.
Best regards,
Daniel A. Ogden
Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.
It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.
To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.
A copy of our Form ADV Part II regarding our advisory services and fees is available upon request.
Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.
