Equity markets took a bit of a step back this week following the realisation that passage of President Trump’s healthcare reform was not going to face quite as smooth a ride through Congress as expected. From this, markets began to extrapolate that the fiscal initiatives proposed by the Trump administration might similarly face a more difficult time in Congress and might not be the ‘done deal’ some have priced in. While much of this might be viewed as a bit of a sideshow for investors, it nevertheless is important as it directly feeds into what should be one the biggest questions they face at the moment—are we in the midst of a major regime shift? If this is the start of a regime shift, it should have significant long-term implications for asset allocation. In this week’s Economics Weekly, we look at the arguments for a such a change.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.