President Donald Trump faces impeachment in the House before this year is up, but his beloved economy — his calling card from his first term in office — is doing just fine. Add Standard & Poor’s to the growing chorus of market analysts saying there will be no recession in 2020, no matter what the financial pundits say. (Sorry, Bloomberg.)
First, the House Democrats have drafted their articles of impeachment. Trump will be impeached for an obstruction of justice charge for not allowing aides to testify, and an alleged abuse of power.
On balance, the market does not seem too worried about this. Poll numbers are not supportive of the Democrats partisan push to impeach. And the Republican controlled Senate will not indict the president, meaning he faces a Bill Clinton-like impeachment scenario. No U.S. president has ever been indicted by the Senate in an impeachment trial.
Trump’s poll numbers versus his top Democratic rivals have also not taken any significant hits from the year’s long drama surrounding his presidency. He remains competitive in swing states he won in 2016.
Should Trump win a second term next November, his party will need to maintain the Senate or take back the House. If Republicans lost both chambers, Democrats would move to impeach him immediately in 2020, creating market volatility only a few are forecasting at the moment.
As the year winds down, the China trade war has failed to crush investor sentiment thanks in large … [+] part to Jerome Powell of the Fed. (Photo by BRYAN R. SMITH/AFP via Getty Images)
AFP via Getty Images
Barring that worse case scenario, Trump is unlikely to be voted out because of his economy. He might be voted out for other issues, but it won’t be for failing to deliver on jobs and wage growth.
Last week’s job numbers and continually low unemployment rates are Trump’s biggest tailwind.
On December 4, S&P Global Ratings estimated the U.S. GDP to expand 1.8% next year, not far off from its 2% potential growth rate. They are forecasting 2.3% growth this year, down from 2.9% in 2018.
“The world’s biggest economy is in a good place,” says Paul Gruenwald, global chief economist for S&P Global Ratings.
GDP growth in the last two quarters came in close to 2%. The drag from lackluster corporate investment is now “largely gone,” Gruenwald says. The labor market remains strong thanks to tax cuts and regulatory rollback, not to mention trade uncertainty causing at least a handful of manufacturers to either build at home or opt out of outsourcing abroad for the time being.
The strong job market, coupled with strong stock returns over the last three years, have been a hallmark of the Trump presidency. While the stock market also roared under president Obama, the same cannot be said for economic fundamentals.
Obama’s presidency came on the heels of total destruction of a number of name brand financial institutions like Lehman Brothers, and brokerages that had to be absorbed by larger firms like Bank of America in order to survive after the housing market collapsed.
Trump inherited a more benign economy. He has delivered on his economic promises to make the country an easier, cheaper place to do business, all the while serving up protectionist policies for blue collar labor.
As a result, the unemployment rate is at a 50 year low of just 3.6%.
The bounce in financial markets in the past two months, including a positive slope in the yield curve — a precursor to recession — has S&P reducing their recession probability for 2020 by five percentage points. There’s now a 25% to 30% chance of 2020 ending with economic contraction.
Gruenwald also warned that the ongoing U.S.-China trade war poses a risk to growth, but he did not mention the positives stemming from the signing of the U.S. Mexico Canada Agreement. The USMCA trade volume is greater than China’s. China is the No. 2 trading partner of the U.S., equal to the trade volume coming from Japan, South Korea and the U.K. The U.S. now has a bilateral trade agreement with South Korea, one about to be inked with Japan, and the potential for a trade deal with the U.K. once Brexit is official.
State Street Global Advisors also said last week that 2020 would be recession free.
S&P Global Ratings’ chief economist says pivoting away from December tariffs would be a positive. … [+] But has the market given up on tariff de-escalation? (Photo by Yao Feng/VCG via Getty Images)
VCG via Getty Images
“2020 is not a year of recession,” says Rick Lacaille, global chief investment officer at State Street Global Advisors in Boston. “We expect the global economic recovery to continue into 2020 against a backdrop of continued monetary easing, policy shifts and persistent pockets of resilience.”
For his part, Fed Chairman Jerome Powell said the labor market was not overheated. He hinted that monetary policy would be kept favorable to growth so long as inflation remains flat, which it has been all year.
The Fed raised rates and tightened its balance sheet in Trump’s first two and a half years in office.
“Green” Stimulus & Phase One China
For S&P Global, fiscal stimulus in the eurozone and — if needed — in the U.S., will likely come wrapped in a “green bow”, especially if Democrats win the White House.
Governments in Europe are now promoting more use of alternative fuels, opening the market for new sources of energy and new jobs to produce, build and distribute that energy even as fossil fuels are expected to remain the base load for many years to come.
On the phase one China trade deal, Gruenwald says “quick fixes” won’t solve the problems.
“The new objective would be to make meaningful progress around investment, technology transfer, and international arrangements,” he says. “Both sides have incentives to make this work.”