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Investors Meet Trump With Reaganesque Optimism

Investors are hopeful Donald Trump's presidency awakens the slumbering economy, according to a strategist at one of the world’s leading banks. The post-election stock market rally is fueling optimism that the real goods and services sectors may be poised to take off as they did under President Ronald Reagan during the 1980s.

Deutsche Bank’s chief equities strategist David Bianco told investors recently that the global stock market will continue to “rally” during the next two years due, in large part, to optimism regarding the president-elect's economic plans.

"We think the market is under-appreciating the likely big boost to S&P EPS {Earnings Per Share] from a lower corporate tax rate and the boost to bank profits from rising yields and the much higher chance now of a long-lasting economic expansion that rivals the 10-year U.S. record," Bianco wrote in a note to clients, released on Friday, a copy of which was obtained by American Media Institute. "We're more confident now that the S&P will reach 25,000 in 2018.”

The Dow Jones Industrial average closed above 19,000 for the first time ever last week.

The Dow has more than doubled since President Obama was elected in 2008, but that strength was not matched by the underlying economy. The Obama economy maintained steady but anemic monthly job growth which did not keep up with the growth of the U.S. labor force. He is all but certain to be the first president since Herbert Hoover to have not presided over a single year during which real GDP grew at least 3%.  

The infrastructure spending and tax cuts planned by Trump and the GOP Congress are expected to get the economy over the hiring hump.

GOP members of Congress, including Speaker Paul Ryan (R-Wis.), have indicated willingness to reallocate federal dollars to spending on the construction of bridges, roads, tunnels and public buildings in response to Trump’s campaign promises.

This would be general spending on infrastructure projects, through the Transportation Department, rather than targeted green spending on blue-sky environmental projects, as seen in the early Obama years.

The market has been fueled during the last two weeks on news of Trump’s election, his anticipated economic policies which many hope will unleash the animal spirits of the global economy as well as an expected interest rate hike at the Federal Reserve.

“I see the Dow at 25,000 within the first year,” Peter Navarro, a professor of business at the University of California, Irvine, who is one of Trump's economic advisors, said recently. “Cutting taxes from 35% to 15% will lead to a net increase in earnings for corporations. ... If we lower our energy prices, that makes our corporations more competitive globally.”

Another cause for optimism analysts point to is the expected oil production cut from OPEC ministers when they meet later this month in Vienna. This should create better market conditions for increased U.S. production oil and natural gas from shale and other sources which Trump has vowed to support.

But hard goods makers are also enthusiastic about the future – also sounding like their forbearers during the go-go 1980s era of economic expansion.

President-elect Trump’s proposal to bolster the nation's infrastructure – through a 10-year, $1 trillion construction plan – may also fuel private investments in new residential and commercial construction and increase overall demand for cold-formed steel framing products, according to an industry report by The Steel Framing Industry Association, a trade group.

Sen. Majority Leader Chuck Schumer (D-N.Y.), voiced possible support for some of Trump’s vision during an interview Sunday. Bi-partisan support, from Democrats and Republicans would be required to increase spending for highways, schools, hospitals, water systems and the electric grid. Though the Republicans hold the majorities in the House and Senate as well as the White House, Democrats can obstruct plans through the filibuster and other parliamentary procedures.

In the steel industry forecast, non-residential construction is nearing its historic zenith, but some momentum is still present as the economic recovery follows a more shallow, multi-year growth trajectory than past recoveries.

"The prospect of a widespread, multi-year economic stimulus resulting from new infrastructure projects presents a once-in-a-generation opportunity to those who manufacture, distribute and install steel framing," said Larry Williams, executive director of the Steel Framing Industry Association, located in Falls Church, Va., near Washington D.C.