Regulatory policy is ‘big divide’ between Trump, Biden

US markets (^DJI, ^IXIC, ^GSPC) have been particularly volatile following the assassination attempt on former President Trump’s life during a campaign rally in Pennsylvania on Saturday. Michael Kelly, global head of multi-asset at Pinebridge Investments, talks to Madison Mills at Catalysts about the “more of the same” political trends that have driven stocks in recent and previous election cycles.

Kelly addresses the policy positions that distinguish Trump and Biden, and the fact that stock markets may already be pricing in a second Trump presidency.

“There are really three big ones, which is that we have a very tight labor market, and immigration has eased that. You can have different political views on immigration, but the tight labor market is eased by that. So the two candidates have very, very different policies. Tariffs, they’re more similar than different, it’s a matter of degree. Taxes, as we said, are a matter of degree,” Kelly told Yahoo Finance. “Regulation is a big divide, a big divide. You saw a big regulatory rollback in the first Trump presidency. It was quiet, but it was significant. And Biden promoted that. So that will be, that will be a big factor as well.”

For more expert opinions and the latest market news, click here to watch the full episode of Catalysts.

This post was written by Luke Carberry Mogan.

Video Transcription

We’ll talk about the reaction we’re seeing in the markets today as investors start to analyze the situation.

Not just the Goldman Sachs results that I mentioned this morning, but also the impact of potential volatility on the continuation of the election cycle after the attempted coup.

Joining us is Michael Kelly, Global Head of Multi-Assets at Pine Bridge Investments.

Michael, thank you for coming to the studio with us.

I really appreciate that.

I know you have an interesting perspective on the issue of soft landings, and I’d like to talk to you about it.

But I’m just curious about the volatility of this weekend and how much any potential upcoming unknown unknowns might impact your economic outlook.

You know, I don’t think so.

It can be, you know, very, very sad and unhappy.

But how much will it change?

The trajectory of things?

We don’t think much.

There were a lot of political trends.

You know, the transition from austerity after the financial crisis to fiscal easing after covid.

Well, we just see more of the same in the future.

And, you know, as long as that’s the case, you know, the dice are basically set.

The story continues

We will live in a world of a stronger dollar.

We will live in a world of stronger growth, while inflation and real interest rates will fall somewhat.

They can’t fall too much because they’re going to be very tough on Europe and the United States. In many, many places for many common reasons.

And in fact, we even think that depending on the candidates, Biden or Trump, both would keep most of those $5 trillion tax cuts from expiring.

Biden wants to keep all of these breaks for people making $400,000 or less, which is a significant portion of that amount.

So either act hot, or act hotter.

And you know, the bond market isn’t going to like that.

The dollar and stock markets are doing well, and the Treasury curve is already feeling the effects of this weekend.

Do you think the market is pricing in what a Trump presidency could look like?

As permanent as it is at this point.

Typically markets make these assessments after Labor Day.

Typically the first debate takes place after Labor Day, and until then you can’t trust the polls.

Well, it’s still a bit early.

But yes, that’s the point.

You see the farm dollar curve is getting steeper and steeper. That means that markets are starting to change the way they’re going to try to invest given the uncertainty surrounding the election. You mentioned tax policy specifically. Is that a key policy to watch from your perspective that could impact markets? Or, well, there’s really three big factors, which is, you know, we have a very tight labor market and immigration has eased that.

You can have all sorts of political views on immigration, but it helps ease the tension in the labor market.

So these two candidates have completely, completely different strategies.

Well, customs.

Well, they are more similar than different.

It is a matter of degree, um, taxes.

As we have said, it is a matter of degree.

Regulation is a serious issue.

The great division.

You know, there was a significant regulatory rollback in the first Trump administration, it was quiet but significant, and Biden promoted that.

So that… That’s also going to be a very important factor.

A Trump presidency could be a catalyst for something more.

This could be a catalyst for bigger M and more aggressive investing by corporates.

And they will feel more confident knowing that no one will introduce new regulations that will negatively impact their cash flow.

How much influence does the Fed have on your approach to this issue?

Well, Fed, we are in the middle of a rate cut cycle and these are important moments in financial markets.

There are two types of interest rate cut cycles.

Where central banks lag behind.

Economic growth begins to decline.

It’s time for central banks to either get ahead of the slowdown in economic growth, which means a soft landing, in which case stocks will do much better than bonds.

Well, either you’re in for a hard landing, with bonds of wealthy investors going up and stocks going down hard.

Therefore, it is very important whether the Fed takes action now or becomes stronger and joins the ECB and many other central banks.

We think so.

Really fast.

Still think the landing will be soft?

Oh yes, yes.

No, this is… This is… This is, uh, these are basically central banks giving us the confidence that even though we’re not super fast, we’re on the right track.

And in this way, we can also observe the reaction of small companies to an environment in which there is less regulation.

And those two things, and finally, consumer inflation is falling faster than wages.

So real purchasing power is starting to strengthen.

So these things are the foundation of a soft landing.

Okay, Michael, we have to end it here.

But thank you very much for joining us.

We really appreciate it.

This was Michael Kelly Global, Multi-Asset Division at Pine Bridge Investments.