While we don’t yet know explicitly what President Trump's plans are for the economy, should he win the election in November, we have a general idea.
When Trump took office in 2016, he had corporate taxes lowered from 35% to 21%. Tax plan number two would even further lower corporate taxes. Compare this to former VP Biden, who wants to raise corporate taxes up to 28%. If Trump were to lower corporate taxes more, the results would raise earnings and be priced into stocks fairly quickly. But it’s important to note that the tax rate can’t fall much from here, as it has already dropped substantially since Trump took office and the fiscal spending required by the virus-induced recession now means the government will have to tighten its belt.
There have been whispers in Congress of a roughly $1 trillion infrastructure bill. That bill has moved slowly of late, but if Trump wants to use the need for better infrastructure in the country as a talking point, Congress may get on it. If so, capital equipment companies like Caterpillar CAT and construction and other industrial service companies will see some additional revenue stream. Higher trade barriers would act against that benefit for these companies, though.
Trump has maintained a hardline stance on the 'America first' approach and has struck an aggressive tone with China. Tariffs are already in place, keeping cost structures for American importers, equipment manufacturers and retailers elevated. The U.S. and China seemed close to a trade deal in January before COVID-19 derailed those talks. All indications in 2020 have been that the Trump administration intends to continue striking a punishing tone with China. More tariffs mean even higher costs for American companies, but also, if American companies onshore, or move some operations back home, the cost of labor would rise. More cost pressure would ensue. This is profit negative.
Trump has already taken actions that loosen bank regulations, which spurs lending volumes. More of the same can be expected, but the marginal benefit for banks' revenue and profits will fade. Also, if banks were to be completely unregulated, a crisis like the virus could have the potential to wipe out the financial system.
All in all, Trump’s policies seem to be net positive for corporate earnings, although by a slim margin. And some on Wall Street do note that the Trump trade-up in stocks can’t be to the same magnitude as it was a few years back. Meanwhile, other factors will impact the market. Vaccine developments, renewed waves of virus infections, ongoing stimulus, the natural speed of the economic recovery and any unforeseen global development will impact the market. Trump’s policies are just one factor acting as a small lift amidst many drags and lifts.