Aurelia Butler

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WASHINGTON (Reuters) -President-elect Donald Trump said on Sunday that Stephen Miran, a Treasury Department adviser in his first administration, would be the chair of his Council of Economic Advisers.The council advises the president on economic policy and is composed of three members, including the chair. The council assists in the preparation of an annual report that gives an overview of the country’s economy, reviews federal policies and programs and makes economic policy recommendations.Earlier this year, Miran and economist Nouriel Roubini authored a hedge fund study that said the U.S. Treasury last year effectively provided economic stimulus by moderating long-dated bond sales.The study echoed suggestions by Republican lawmakers that the Treasury deliberately increased issuance of short-term Treasury bills to give the economy a “sugar high” ahead of the November elections. The Treasury denied any such strategy.Miran, a senior strategist at Hudson (NYSE:HUD) Bay Capital, has also argued that fears over trade tariffs that Trump has threatened to impose after he takes office next month are overblown. Trade and economic experts have said such duties would raise prices and would effectively be a new tax on consumers.Last month, Trump tapped Kevin Hassett, who was a key economic adviser in his first term, to chair his National Economic Council, which helps set domestic and international economic policy.Hudson Bay Capital took a position in Trump’s social media firm Trump Media & Technology in the first quarter of this year. More

NEW YORK (Reuters) -With December so far delivering Scrooge-like returns in an otherwise stellar year for U.S. stocks, investors hope the tail end of 2024 offers some holiday cheer, but warn of potential headwinds.The benchmark S&P 500 is up more than 24% for 2024, even after a major stumble this week, and Wall Street has historically often enjoyed a strong annual close. Since 1969, the last five trading days of the year combined with the first two of the following year have yielded an average S&P 500 gain of 1.3%, a period known as the “Santa Claus Rally,” according to the Stock Trader’s Almanac.But this year, there are signs Santa Claus may disappoint. The S&P 500 on Wednesday suffered its biggest one-day drop since August after the Federal Reserve caught investors off guard by signaling fewer-than-expected interest rate cuts in 2025. The market also looks less healthy beneath the surface: Eight of the 11 S&P 500 sectors are in negative territory for December, while the equal-weight S&P 500, a proxy for the average index stock, is down 7%. Another worry for stocks as the year winds down is rising Treasury yields, said Matt Maley, chief market strategist at asset manager Miller Tabak. Benchmark 10-year yields hit 4.55% on Thursday following the Fed meeting, their highest level in over six months. With the S&P 500 trading at 21.6 times forward earnings estimates, well above its 15.8 historical average, according to LSEG Datastream, that jump in yields will put more pressure on equity valuations. “We’re ending the year with people finally facing the reality that the stock market is extremely expensive and the Fed is not going to be as accommodative as they had been thinking,” Maley said. Still, this week’s pullback could be positive because it eliminated some of the frothy sentiment in equities, “setting up the market for a rebound,” said Chuck Carlson, chief executive officer at Horizon Investment Services. “If there is further follow through on the downside, that could be a little bit more dangerous to the bullish trend.”The Santa Claus period, when combined with the following first five trading days of January and the performance of January overall, is a harbinger for the year: when those three indicators are positive, the year has ended higher more than 90% of the time in the past 50 years, according to the Almanac.But that seasonal strength may have come early this year, given the S&P 500 posted a blockbuster 5.7% return in November driven by Donald Trump’s Nov. 5 presidential election victory, Carlson said.”It’s been a strong year for the market, and you can make an argument that we kind of got the year-end rally in November instead of December,” Carlson said.Signs that the market rally is increasingly narrow could also spoil any holiday cheer. A number of megacap stocks have performed well in December, including Tesla (NASDAQ:TSLA) and Alphabet (NASDAQ:GOOGL), which are up 22% and more than 13% respectively so far this month. Broadcom (NASDAQ:AVGO) shares are up 36% for December after the company this month predicted booming demand for its custom artificial intelligence chips, pushing its market value over $1 trillion.But such gains are increasingly sparse. The number of S&P 500 components that declined outpaced those that advanced for 13 straight sessions as of Wednesday, the longest such losing streak in LSEG data that stretches back to 2012.In another worrisome sign, the percentage of S&P 500 stocks trading above their 200-day moving averages declined to 56% as of Wednesday, a low for the year, according to Adam Turnquist, chief technical strategist for LPL Financial (NASDAQ:LPLA).”We recommend waiting for support to be established and for momentum to improve before stepping up to buy the dip,” Turnquist said in a note following Wednesday’s selloff. More

“An already high deficit will force compromise on tax cuts and spending pledges, and we think corporate tax cuts are unlikely in the absence of much higher tariff income,” the team led by Jason Draho said in a note.The U.S. government deficit currently exceeds 7.5% of GDP, while the debt-to-GDP ratio has climbed past 120%.UBS notes that while a debt crisis is not imminent due to the reserve currency status of the U.S. dollar and deep capital markets, “the U.S. government does not have an unlimited borrowing capacity.”To stabilize the debt-to-GDP ratio, strategists believe measures such as entitlement reform, financial repression, or higher taxes will likely be required.A Republican-controlled Congress, despite holding the Senate, House, and Presidency, is expected to face hurdles. Thin congressional majorities and fiscal hawks within the party may challenge expansive fiscal policies.UBS highlighted that “high deficits” are now a significant constraint. For example, the additional cost of Trump’s proposed tax and spending policies is estimated at $7 trillion over 10 years, potentially rising to $15 trillion in a more aggressive scenario.“With today’s much higher budget deficits and narrow majorities, we think Congress is likely to be reticent to approve measures which would widen the deficit further,” strategists note. “In fact, some members of the administration have spoken about lowering the deficit-to-GDP ratio to 3%.”Interest rates are another challenge, as higher rates have pushed government debt service costs beyond defense spending levels. UBS expects a modest decline in borrowing costs but notes risks from inflationary pressures, tariff policies, and changes in the Federal Reserve’s Treasury holdings.The bank sees Republicans likely pursuing fiscal policies through reconciliation, a process allowing budget changes with a simple Senate majority. This could include border security initiatives and attempts to extend provisions from the 2017 tax package.However, extending personal income tax cuts for a full decade would cost $4 trillion, a burden UBS believes might be mitigated by limiting the extension to shorter terms. As UBS explains, limiting the time horizon could reduce the cost to $1.3 trillion for a five-year extension.“Shortening the time horizon on personal tax cuts could also help Republican leaders stay below an agreed-upon cumulative deficit target and help fund other policy pledges, like corporate tax cuts, lifting the State and Local Tax (SALT) deduction, and retaining the higher estate-tax exemption,” strategists explain.Efforts to offset fiscal measures are also constrained. Tariff revenue, while politically attractive, is unlikely to fill the gap. UBS notes that even imposing a 10% universal tariff would generate only $2 trillion over 10 years, and such a move would likely dampen both domestic and global economic activity.Similarly, spending cuts or efficiency gains would offer limited relief, with UBS describing such measures as akin to “looking for coins in the couch cushions.”As President-elect Trump begins his second term, UBS highlights growing concerns over America’s fiscal health. With government debt exceeding 120% of GDP and interest costs consuming 13% of revenues—the highest among developed nations—the continuation of rising deficits is deemed unsustainable.UBS believes that while immediate risks of a debt crisis are low, unchecked fiscal imbalances will constrain the government’s ability to respond to future economic shocks. Achieving long-term debt sustainability will likely require a mix of higher growth, lower rates, and structural reforms, including financial repression, entitlement changes, and tax increases. More

Analysts have revised their projections for the U.S. Federal Reserve policy, removing a previously anticipated rate cut in January. The terminal rate is now expected to fall within the 3.5-3.75% range, compared to earlier estimates of 3.25-3.5%. The brokerage anticipates the next 25 basis-point cut to occur in March, followed by additional reductions in June and September.U.S. economic performance is projected to continue outpacing its developed-market peers, supported by robust real income growth and superior productivity gains. Goldman forecasts U.S. real GDP growth at 2.6% year-over-year in 2025, alongside a gradual decline in the unemployment rate to 4.0% by year-end. Core inflation is expected to ease to 2.4% by December, driven by softer shelter costs and wage pressures, despite upward pressure from tariff adjustments.Globally, Goldman Sachs expects a year-over-year real GDP growth rate of 2.7%, underpinned by increases in disposable household incomes and easing financial conditions. However, structural issues in the Eurozone and China could dampen momentum. In the Euro area, real GDP growth is forecasted at a modest 0.8%, constrained by high energy costs, competitive pressures from China, and fiscal consolidation. The European Central Bank is expected to continue rate cuts through mid-2025, potentially reaching a policy rate of 1.75%.In China, the outlook remains cautious despite recent policy easing. Real GDP growth is expected to slow to 4.5% in 2025 due to weak consumer demand, challenges in the property sector, and higher U.S. tariffs. Long-term risks are amplified by unfavorable demographics and the global trend of supply chain diversification away from China.Geopolitical developments, including U.S. tariff policies under the new administration and ongoing uncertainties in the Middle East and Ukraine, remain critical factors to monitor. Analysts note the potential for major impacts on European and Chinese economies if across-the-board tariffs are implemented.The updates underscore a complex global economic environment where growth opportunities are tempered by persistent structural challenges and geopolitical uncertainties. More

Despite Republican control of both chambers of Congress, UBS notes that the dynamics of high deficits, narrow congressional margins, and rising debt-servicing costs will likely limit expansive fiscal initiatives.UBS projects that the fiscal deficit will remain elevated, constrained by a combination of economic and political factors. The federal deficit currently exceeds 7.5% of GDP, and the government debt-to-GDP ratio has surpassed 120%, raising serious questions about sustainability. While the U.S. benefits from its reserve currency status and deep capital markets, analysts caution that borrowing capacity is not infinite.Although Trump has laid out ambitious tax cuts and spending promises, UBS anticipates that slim Republican majorities in Congress will pose challenges. The report flags that fiscal hawks within the Republican Party could obstruct expansive tax and spending plans, particularly given the significant costs involved. Extending personal income tax cuts from the 2017 Tax Cuts and Jobs Act would alone cost an estimated $4 trillion over ten years. UBS suggests that such measures might be limited to shorter horizons or require offsets like increased tariffs.Trump’s campaign trail promises include significant increases in border security spending and the extension of tax cuts. UBS analysts predict these proposals will face resistance from both fiscal conservatives and Democrats. Additionally, high interest rates further complicate the fiscal landscape. Net interest payments on U.S. debt have already surpassed defense spending, marking a significant shift in budget priorities.UBS emphasizes that while a U.S. debt crisis does not appear imminent, the long-term trajectory is troubling. Current projections suggest that U.S. debt-to-GDP will climb to 132% by 2034 under existing trends, with deficits expected to remain above 7% of GDP over the next decade. Efforts to stabilize the debt-to-GDP ratio will likely require difficult choices, including entitlement reform and potential tax increases. However, political resistance to these measures remains strong.UBS analysts propose several potential strategies to address the mounting fiscal challenges the U.S. faces under the Trump administration. One approach involves limiting the extension of the 2017 tax cuts to a shorter time frame. Instead of a ten-year renewal, a five-year extension could mitigate fiscal pressure by reducing the projected revenue loss. This more measured approach might help balance other fiscal priorities without significantly expanding the deficit.Another avenue being explored is the use of tariffs to generate additional revenue. A particular focus has been on tariffs targeting China, given bipartisan support for a tougher trade stance. While tariffs could offer a financial boost, UBS cautions that this method carries significant economic risks, including potential retaliation and reduced global trade activity, which could ultimately strain the U.S. economy.Lastly, the concept of financial repression is highlighted as a means of managing debt costs relative to GDP growth. By maintaining artificially low interest rates and implementing regulatory measures to ensure institutional purchases of government bonds, the administration could contain debt servicing expenses. Such strategies, UBS notes, could offer short-term relief, but they also underscore the complexities of navigating long-term fiscal sustainability in an environment of elevated debt levels. More

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