The inauguration was yesterday. Sentiment is high that the Trump Administration will be transformative. Now comes the hard part…living up to expectations.
As with every Administration, there will be successes and failures. Some policies will be adopted, others not.
Some suggest the only comment to make is that bureaucracies have become too powerful; unelected officials writing legislation where the government has changed from “government of the people for the people” to a government that appears self-aggrandizing, inflexible and the inability to utilize discretion and common sense.
Commenting on Friday’s markets, equites were encouraged by a conversation between President-elect Trump and Chinese President Xi Jinping. Trump wrote on Truth Social “The call was a very good one for both China and the USA.” He further wrote “President Xi and I will do everything possible to make the World more peaceful and safe.”
Last week “the other 493” lead the market and had the best week since July relative to the broad market. As widely discussed, the Magnificent Seven accounted for over 67% of the S & P 500 gains in 2024 and 63% in 2023 according to Bloomberg.
Treasuries were mixed as there might be yet another recalibration of monetary policy expectations.
Late Friday afternoon, the CBO released its latest deficit outlook. The CBO states the government is on track to surpass record debt levels set after WWII in just four years. Total US government debt held by the public is projected to reach 107% of GDP in 2029, exceeding the 106% record set in 1946.
[Note: debt held by the public does not include the debt held by bureaucratic entities such as the social security trust fund and the like. In 2024 if non publicly held debt is counted, the total debt outstanding is approximately $35 trillion]
By 2035, total debt held by the public is forecasted at $52.1 trillion, which would be 118.5% of GDP. At the end of 2024 fiscal year—it stood at $28.2 trillion, or 98% of GDP.
The rising debt burden is largely driven by Social Security and Medicare costs along with growing interest payments to service the debt, the CBO said.
Interest payments on the debt is expected to reach 3.2% of GDP in 2025, climbing to 6.1% of GDP in 2035. In 2020 interest payments were only 1.6% of GDP.
Most believe current fiscal policy is unsustainable. However, most also believe it is political suicide to adopt the policies needed to lower the deficit. Raising taxes is not the answer as it has always been a spending issue not a revenue issue.
The CBO also stated that federal revenues are at a record on both the absolute and percentage basis for the exception of 1944 when the government collected nominally more revenue on a percentage basis in taxes than 2024.
What will happen this week?
The economic calendar is comprised of the Index of Leading Economic Indicators, a sentiment indicator, and several manufacturing gauges.
Last night the foreign markets were mixed. London was down 0.02%, Paris up 0.15% and Frankfurt down 0.07%. China was down 0.05%, Japan up 0.32% and Hang Seng up 0.91%.
Futures are up about 0.50% as the markets are focused on the potential of tax cuts and economic growth versus the potential inflationary impact of tariffs. The 10-year period is up 14/32 to yield 4.57%.
