Global Politics: Present State of Affairs

United States

We just eclip sed the milestone of Pre sident Trump’s 100^th day in office. Whether it is prudent o judge a g overnment le ader in such a short perio d of time is f or debate. R ight or wron g, presidents generally receive their in itial report card after their first 100 days, and Trump himself has empha sized the im portance of that time period. With Republican c ontrol of Congress, there is still time through at least 2018 for Trump to ccomplish m any objectives. But so far, we have:

The Positives:

• Trump ’s deregulation agenda has been near the top of the White House to-do-list. No matter how you feel about these moves politically, the financial markets have rallied on the prospect of more freedom to seek growth and profit. 
• The President successfully appointed his first Supreme Court nominee, Neil Gorsuch. The appointment came as the Senate blew up long standing Senate rules t o garner approval with less than sixty yes votes. Adding a conservative bench member to the Supreme Court has been Trump’s largest victory thus far.

The Negatives:

• For all the drama created in the first 100 da s, the President has seen more object ion than acceptance of his policies — his travel ban wa s blocked by the courts more than o nce, the bor er adjustment tax was largely met with a athy, and "the wall" doesn't seem lik e it will be b uilt anytime soon. To dat e, we have only s een an abrid ged version o f Trump's tax plan; no de tails or numbers have been provided for clarity. Additi onally, the President’s plan for infrastr ucture spending has yet t o be revealed.
• Health care reform, one of Trump’s primary campaign focuses, has been difficult and met with failure to date.  The GOP efforts have actually increased citizen support for the Affordable Care Act, with the last poll showing only 37% of the nation favors repeal.  Th e efforts of the White House will be ongoing, seeking a win on a very public issue.  Health care spending represents nearly 20% of gross domestic product (GDP); such large agenda items often take much longer than anticipated to make law .(Update: on Trump’s 105th day in office, the House voted to pass t he GOP’s health care bill, it will now move to the Senate where its fate remains uncertain.)

As we said, the story is just beginning for the United States under President Trump. As he learns to govern, it will be interesting to see if he adapts and becomes more successful at getting legislation passed. For the markets to continue their positive view, the President must foll ow through with deregulation and show a real impact on the economy. We ’ll wait and see. It is likely the events that will define this Presidency in history have not yet taken place.

Across the Pond

While most of the United States is focused on the political head lines hitting the wire at breakneck pace (Thank you, Twitter!), an extremely important voting process is playing out in France.  The first round of t he French presidential election occurred on April 23rd.

While the investing world hoped for two pro‐market candidates to move on to the second round of voting, only Emmanuel Macron was able to advance.  Former Prime Minister Francois Fillon was unable to break into the top two in vote count.    Instead, Marine Le Pen, leader of France’s National Front was able to survive and move forward.

The Positives:

• Having Macron, the founder of France’s social-liberal party En Marche!, move to the second round of voting calmed both the geopolitical climate and the financial markets. The majority of the world likely breathed a sigh of relief that the odds of enormous French upheaval had dissipated. Risk assets and spreads on many European bonds reacted quite well to the news as rallies occurred around the world in relief of a moderate moving on.
• Macron is much more likely to keep France in the European Union. While issues remain no matter who is victorious, the changes under Macron would be more subtle and easier for global markets to absorb.

The Negatives:

• Le Pen’s National Front is a right‐wing populist and nationalist party. She and the party oppose France’s membership in the European Union. She also supports economic protectionism, is anti‐immigration and has a zero tolerance policy to law & order issues. While some in France are open to these views, her control would move France in a very different direction and likely upset the financial markets (among other things).
• While Le Pen is down substantially in the early polling for second round voting, results from the 2016 U.S. presidential election and the British “Brexit” vote have taught us to be somewhat cautious in terms of polling data for political voting. Macron is young (39) and somewhat inexperienced. He has already seen slight erosion in his lead, just days after the vote. But, with a nearly 20% lead and the second round vote occurring on May 7th, it would seem Macron is in solid shape. If Le Pen can cut the lead to single digits before the vote, a Le Pen victory would no longer be shocking. As of May 2nd, though, the best poll for Le Pen still has her down by 18%—a much larger deficit than either Brexit or Trump faced with just 5 days before the vote.

While the market reaction to a surprise French Election result would likely be grim, geopolitical events often fade from memory and markets get back to trading on fundamentals.  This election, plus Germany’s federal elections and China’s leadership transition in the fall of 2017, will be newsworthy.  Once over, though, these events will most likely quickly pass into the market’s rear‐view mirror. 

— JMS Team

Disclosure:
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation for a specific investment. Past performance is not a guarantee of future results.