The markets have moved a lot in anticipation of a large fiscal stimulus from the incoming Trump administration. In this article, an economist from the Bank of America says the markets at this point still aren’t pricing in everything he expects from the new administration. He gives two data points he’s going to watch to determine when the likely new policies are priced in to the markets.
Despite the magnitude of some of the moves in currencies and bond yields, Bank of America Merrill Lynch Global Head of Rates and Currency Research David Woo doesn’t think the markets have adequately adjusted to how the macroeconomic backdrop will shift under the new administration.
Trump and Republicans in Congress are poised “to unleash the mother of all fiscal stimuluses in the next two years,” he said in a phone interview. Woo also outlined the two indicators he’s keeping an eye on to tell him when this new macro environment has been fully priced in: consensus growth forecasts and market-implied pace of rate hikes by the Federal Reserve.