Trump win sparks economic optimism

MARY REICHARD, HOST: Coming up next on The World and Everything in It: financial markets and the 2024 election.

All three major U.S. stock indexes closed at record highs yesterday. Optimism over election results seemed to be behind the biggest post-election jump in the Dow Jones Industrial Average in more than a century.

NICK EICHER: Let’s talk now with financial analyst and adviser David Bahnsen … you know David as our regular on the Monday Moneybeat … but we did want to check in with him to get his read on the economic effect of Election Day. David, talk about not just Wall Street … but the economy generally … what’s the reaction to the Trump-Vance victory?

DAVID BAHNSEN: Let me give listeners some context. When it was clear in 2016 at whatever point in the evening that Trump was going to beat Hillary, the futures at one point, dropped about 1000 points and Carl Icahn famously came in and was buying a significant amount of overnight market action. You know, when I say significant amount something with two or three commas in it, and then when I woke up the next morning, the market was up 500 points. And so there was this immediate reaction that a Trump win was going to be destabilizing, and then markets immediately settled and did what they always do, which is rationalize expectations of the future, which in that case was largely about some form of tax cuts and some form of pro growth supply side type agenda.

And in this case, I wasn't surprised that futures rallied. Some of the stuff is sillier with crypto and other speculative things, but then bond yields went up a lot. So bond prices fell quite a bit, but that's a more bullish indicator in that it's saying, well, they think there's going to be a more growth agenda. It could also be that they think there'll be more government spending, but that's hard to believe that the market would have thought.

I think Trump's a big spender, but I don't think that the market believes he's any bigger of a spender than Harris would have been. So I think it's largely the bond market pricing in expectations for more growth, which is a good thing, but then in the morning, the futures were the same. There wasn't any reversal. There weren't any speculators that got whipsawed around. So and then, as we're recording here now, with the markets open, because futures and overnight action are always fallible, but no, the market is indeed up right at that 1200, 1300 point level in the Dow.

So look, at worst case, if Trump doesn't get any new tax cuts passed, there is a very high likelihood that all of the old tax cuts that were supposed to expire at the end of 2025 are now going to be extended. And I do believe a few 100 points or more of this rally is not merely the presidency. It's the Senate, which everyone knew the Senate was going to be 51. I thought there was a really good chance of 52. I think this thing could be 55. I can't even believe I'm saying it. There isn't a single political pundit who thought that the Republicans could win Michigan, Nevada, Wisconsin Senate seats. I don't know that they will, but the fact that that's even close, when the polls were 7-8-9, points, the other way. That's crazy. So, yeah, that's a lot of what we're pricing in here in markets right now.

EICHER: We’ve discussed tariffs and how they work and as a policy tool that’s very much identified with not only the first Trump presidency but with his candidacy this time around, lots of talk about tariffs and protectionism. I’m a little surprised there wasn’t a negative market reaction at all.

BAHNSEN: In the few weeks before the election, I did interviews at length with a real, I think, substantive, thoughtful set of questions about Trump and tariffs from the Wall Street Journal, the New York Times, Bloomberg, now this morning, I've talked to NBC, CNBC, Washington Post, none of them brought up tariffs, and it could just be that they're processing things in a certain order. I mean, I do think that there's a lot more bigger political stories to take in, but because of the robust, bullish market response, you would think some of the media outlets would say, Well, wait a second, what's the deal here with tariffs?

Look, a lot of people that are so happy that Trump has won don't want to hear anything critical here today. Let's be really clear about something that doesn't make any sense. He says it's going to raise a ton of revenue, and he says it's going to bring all the jobs back to the States. But how can it do both? If it's raising a ton of revenue, it means that we continue importing from foreign manufacturers, and if it brings a ton of jobs back, it means we stop importing from foreign manufacturers, but the tariffs are generating any revenue.

So it can't be both, and I believe it's that he is planning to use it as a blunt instrument in negotiation. And people can debate whether or not that will be effective. But one thing he has going for him now in negotiation, because I really hope he doesn't try this with Europe or Japan or South Korea or Canada or Mexico or other allies of the United States. But with China, China's economy is nowhere near the position of strength and leverage it was in 2016, 2017, 2018, so he's holding different cards now than he was then. We will see how that plays out.

EICHER: And finally, David, we’re going to have to wait and see a bit about the economic team Trump gathers around him, but one we know is going to be around the White House quite a bit will be Elon Musk. I don’t think that’s a hard prediction. But talk about what effect he might have.

BAHNSEN: Well, there's a kind of no controversy about the fact that he's a genius. There are a lot of brilliant geniuses that weren't necessarily self made to the degree he is. You know, this is someone who had made about 30 million bucks in a company, rolled it all into PayPal, made about 120 million in Paypal, and rolled all of that into what became Tesla. And people don't do that with their own money. They usually, because they've gotten to that position, are now in a position where they can access capital markets and use other people's money to leverage their next big deal.

Musk is a risk taker, and he's obviously a brilliant person. Now, it's not the same thing trying to get stuff done in Washington that it is in the private sector. The incentive structures are different. This is one of the reasons why, philosophically, people like me are so opposed to more power being concentrated in Washington. Because there isn't a profit motive, there isn't the same level of knowledge and time and place circumstances that you have in markets. So how Musk will do where there's a bureaucracy, where there's separation of powers, there's a lot of complexity. He's also not going to have an official government position. So, you know, I don't know how handcuffed he'll be. All things been equal I like that he's got a seat at the table, and I don't expect anything negative to come from it. How positive it'll be. We'll have to see.

EICHER: All right, David Bahnsen, founder, managing partner, and chief investment officer of The Bahnsen Group. Talk more on Monday!

BAHNSEN: Thanks so much, Nick.

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