The Federal Reserve stands pat on interest rates at their first meeting since President Trump took office, as they wait for more clarity on fiscal policy. Michael Craig, Senior Portfolio Manager, TD Asset Management talks with Kim Parlee on whether recent public and political pushback could pose a risk to Trump getting its economic agenda through Congress.
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00:00:04.287 Welcome to the show.
00:00:05.120 I'm Kim Parlee.
00:00:05.772 Thank you so much for joining us tonight.
00:00:07.480 And my apologies again for my bandage.
00:00:09.400 Bear with me.
00:00:10.070 It's getting better soon.
00:00:11.320 Well, the Fed issued its first rate announcement
00:00:13.750 since Trump became the President of the United States.
00:00:16.180 And as expected, there was no change to policy.
00:00:19.030 But for some perspective on perhaps what we should be watching
00:00:21.640 and what we should be listening for with regards to the Fed
00:00:24.100 and everything else that's going on, we're joined by Michael Craig.
00:00:26.891 He is Senior Portfolio Manager at TD Asset Management.
00:00:30.190 I say "everything."
00:00:31.120 I think I almost roll my eyes when I say "everything" because it's just
00:00:34.078 utterly exhausting keeping up to what's been going on.
00:00:37.010 But let's start with the simple stuff.
00:00:38.980 Janet Yellen, the Fed came out today.
00:00:41.380 What stood out for you in terms of what they said or didn't say?
00:00:44.640 It was quite a quiet and uneventful meeting today, which was a bit surprising.
00:00:48.237 The market wasn't expecting much, but I would have
00:00:50.320 thought they would have made some reference.
00:00:52.153 They did talk about sentiment in the US improving,
00:00:54.874 both in the consumer and manufacturing sector.
00:00:56.790 So things are getting better.
00:00:57.998 And these trends were well in place before the election, so nothing new.
00:01:01.510 And expectations for rate increases didn't change after the meeting.
00:01:04.510 With the data, I'm curious.
00:01:06.319 The one thing I did note was the fact that sentiment, they noted it was better.
00:01:09.610 But is that backward-looking?
00:01:11.800 Has that changed?
00:01:12.640 I mean, because things have just been so rapid-fire
00:01:14.854 since President Trump has come in.
00:01:16.270 I mean, we've lost count of the number of orders that have come in.
00:01:19.254 We all follow the headlines and have seen some of the chaos that has ensued.
00:01:22.420 So do you think that optimism is still there?
00:01:24.750 I think globally, there's been an uptick in growth, not only in the US,
00:01:27.880 but also in Europe and other jurisdictions.
00:01:30.020 And so again, these trends all emerged in the late summer.
00:01:33.720 And now they're starting to mature somewhat.
00:01:35.620 So the cyclical backdrop is probably near the end.
00:01:38.960 And so we kind of--
00:01:39.910 Trump certainly gave it a kick with his election,
00:01:42.700 with the belief that deregulation and fiscal spending was coming.
00:01:46.099 So that certainly added more juice to this.
00:01:47.890 But this is just a cyclical cycle like any typical economic cycle is.
00:01:52.480 But I would say the political cycle is probably different than any other political
00:01:55.100 cycle we've
00:01:55.726 Much more eventful.
00:01:56.840 So let's focus a bit on that.
00:01:58.060 Because I'm curious about your thoughts on what you're seeing right now.
00:02:02.290 Because I've heard everything that President Trump is going to be here for eight years.
00:02:06.370 I've heard people-- utter chaos right now.
00:02:08.889 So you, as an investment professional, I mean,
00:02:11.992 what do you do with all this information?
00:02:13.700 And what are you thinking?
00:02:14.620 What do you think that we need to be thinking about right now?
00:02:17.203 The key thing I would mention is that the volatility or the risk
00:02:20.020 aversion of the markets is very low.
00:02:21.802 People are way too comfortable with what's going on, with the backdrop.
00:02:24.760 If you think about Trump, in the summertime, he was--
00:02:27.861 he said a lot of crazy things.
00:02:29.110 But a lot of people who supported him just dismissed it as election rhetoric.
00:02:32.920 He was very-- on Trump standards-- very conciliatory after the election.
00:02:35.980 He mentioned what a great campaign Clinton had run.
00:02:39.070 And the markets did a V. Basically, as the election night proceeded, markets sold off.
00:02:44.490 And as soon as Trump spoke, they rallied into the next day.
00:02:47.530 And so that fed a lot of optimism within markets.
00:02:49.930 And we had a very great rally November and December.
00:02:53.410 Now with the first 12 days of his candidacy-- or his presidency, sorry--
00:02:57.520 I think we started realizing that the Trump president is actually
00:03:00.460 quite similar to the Trump candidate.
00:03:02.120 And for the first two policies, he started off a trade war with Mexico
00:03:06.490 and caused chaos at various airports.
00:03:08.560 And so these aren't necessarily the pro-growth deregulation policies
00:03:11.876 the market was looking for.
00:03:13.000 It's interesting, because you're absolutely right in terms
00:03:16.060 of I think people looked at the tax cuts.
00:03:18.310 They looked at the fiscal policies, what it could do.
00:03:21.010 But I always talk about like friction costs and chaos.
00:03:23.500 And I mean, those--
00:03:25.530 we don't know what they are yet, but they seem to be rising.
00:03:28.150 I mean, I'm just thinking about talking to lots of people
00:03:29.930 at companies now trying to think about, well, can we send these people over here?
00:03:33.580 Can they come back?
00:03:35.410 Airline stocks, for example, dropping 4% or 5%.
00:03:38.050 So is that going to outweigh the other stuff?
00:03:41.290 Well, the US has had a competitive advantage for decades drawing some of the best people
00:03:45.160 from around the world to work there.
00:03:47.200 And even though he hasn't targeted highly-educated engineers, for example,
00:03:53.844 I think many people who aren't from the US who are working there today
00:03:56.760 are asking themselves, what's next?
00:03:58.459 And so it's set off a bit of a fear within the United States.
00:04:01.000 Totally unnecessary, by the way.
00:04:02.950 And so this is not--
00:04:04.390 if you think about it, the big question, is Trump good or bad for the markets?
00:04:07.640 Well, the question is, in four years' time, is the US going
00:04:09.105 to be more productive than it is today?
00:04:11.480 And so far, his policies have been anything but supporting productivity.
00:04:14.920 And as a market perspective, you have to keep that in mindset
00:04:18.730 when you're looking at equities.
00:04:20.329 When you and I were chatting beforehand, I mean,
00:04:21.790 you talked about just basically-- let's temper our enthusiasm, if you will,
00:04:25.150 for that Trump rally, I guess, that that started up to this point.
00:04:29.440 When you look sector-specific--
00:04:31.549 I think again, there's a few unknowns here.
00:04:33.340 Because trade-off, obviously.
00:04:34.960 The border is going to impact so much.
00:04:37.060 But you know, the airlines sell-offs and those types of things,
00:04:39.110 what do you think when you see that?
00:04:40.609 Well, his policies are inflationary.
00:04:43.130 And so for sectors who have sensitivity to that, it could be problematic.
00:04:46.200 I have to think that if you're an automaker, having
00:04:48.970 to shift production from Mexico to the US, it's going to increase your costs.
00:04:52.690 And so it bears the question whether they can pass those costs onto consumers.
00:04:56.770 The tech sector will be another area where they really need--
00:04:59.909 there is a skills shortage in the US.
00:05:01.450 They really need to draw in people from other countries to fill those skill gaps.
00:05:05.570 And if immigration becomes more challenging, they're
00:05:08.400 going have a harder time filling those gaps.
00:05:10.640 And that will ultimately lead to more wage inflation.
00:05:13.190 So those are things that we're thinking about and could be
00:05:16.100 problematic with his policies going forward.
00:05:18.560 So when you show--
00:05:20.180 again, investment side on.
00:05:21.502 So when you're looking at this, what's an investor to do in this environment?
00:05:24.710 I mean, there's just so many unknowns right now.
00:05:27.770 Or are there?
00:05:28.430 I mean, are the headlines kind of blowing things out of proportion?
00:05:31.714 We're not changing our investment approach totally dramatically.
00:05:34.380 We're using what we used before and being mindful of his policies.
00:05:37.391 And sometimes, trying to take advantage of the volatility he
00:05:39.890 is causing to reset positions.
00:05:42.260 But our work would show us that cyclically, things are pretty good, are pretty hot.
00:05:46.520 But structurally, we are in the late stages of this equity rally.
00:05:49.642 And that was the case before Trump.
00:05:51.100 And nothing has changed.
00:05:52.100 And so we're kind of tempering our enthusiasm.
00:05:54.479 I think we like equities.
00:05:55.520 We like them more than bonds right now.
00:05:57.530 But we are mindful that this is a multi-month view.
00:06:01.520 But the next few years, we are likely to hit for more challenging markets
00:06:05.250 than what we've seen for the past three years.
00:06:07.296 Michael, always a pleasure.
00:06:08.420 Thanks so much.
00:06:09.180 Thank you.
00:06:09.680 Michael Craig, Senior Portfolio Manager with TD Asset Management.
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