By
Derek Hamilton
December 18, 2024
As we continue to assess the implications of the recent US elections, the significant number of expected policy changes cannot be ignored. In addition to increased tariffs and a crackdown on immigration, concerns have been raised around potential policy disruptions to industries or companies, including areas such as healthcare and defense.
President-elect Trump has created a new entity to serve in an advisory capacity to the federal government, called the Department of Government Efficiency (DOGE), which will be headed by entrepreneurs Elon Musk and Vivek Ramaswamy. DOGE has been tasked to find savings by reducing government spending and increasing government efficiency, which has put into question the future business environment for government contractors.
While we have views around DOGE and its ambitious goals, we would rather focus on the specific impact of government uncertainty. The chart below illustrates how large swings in policy uncertainty can influence economic growth, and a similar correlation can be found between policy uncertainty and equity values. While we believe the long-term policy mix could benefit economic growth and corporate earnings, short-term policy changes could temporarily result in negative shocks. Overall, we continue to be positive on the economic outlook, while at the same time having an acute awareness of potential policy risks.
Sources: Macquarie, Macrobond, Economic Policy Uncertainty, US Bureau of Economic Analysis (BEA). Shaded areas represent recessionary periods.
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