It could be a battle of ultra-rich businessmen in the 2020 presidential election. Investors keen on seeing the bull market in stocks continue may want to root for a surprise win of the presidency by former New York City mayor, philanthropist and business media tycoon Michael Bloomberg.
“I think he [Bloomberg] would be better for the markets because he would represent more fiscal responsibility,” Brown Brothers Harriman Chief investment strategist Scott Clemons said on Yahoo Finance’s The First Trade. “One of the most interesting things — and discouraging things — about this administration over the past two or three years is that we are running trillion dollar deficits in a period of relatively good economic activity. I am a long-term investor, so I worry what that means in the longer term when the economy turns down again.”
To Clemons’ point, Trump’s outsized spending on the military and his trademark corporate tax cuts helped push the U.S. budget deficit to nearly $1 trillion in the 2019 fiscal year, according to U.S. Treasury Department data. That marked the biggest gap since 2012.
Equity and bond markets have largely ignored the ballooning U.S. deficit, instead focusing on the powerful positive impact of the Federal Reserve’s three interest rate cuts this year and strong corporate stock buybacks (due mostly to Trump’s tax cut plan). But if the U.S. economy does slip into a mild recession within the next two years as many on Wall Street think, stocks could get drilled and bond yields could soar on deficit worries.
A President Bloomberg — who would presumably lean left and roll back some of Trump’s military spending and signature corporate tax cuts —may be viewed as a deficit hawk, a good thing amidst a hypothetical recession. Another four years of Trump could see the deficit grow even bigger, putting an array of assets at risk for downside.
Nevertheless, we say surprise win for Bloomberg because he hasn’t formally entered the presidential race. So, it’s hard for a longer term investor to begin even pondering a President Bloomberg and his administration’s impact on markets. Bloomberg only filed paperwork and qualified for the Alabama primary this past Friday.