A Barron’s article from August outlines an interview with Larry Jeddeloh, founder of the Institutional Strategist newsletter and the research firm TIS Group, in which he shared insights regarding the risks and opportunities in what he sees as a “new era” for the financial markets.
Here are some highlights:
- According to Jeddeloh, the Trump administration’s national defense strategy is “driving economic and trade policy. This is new.” He added that this poses significant risk to investors: “We will see more protectionism, sanctions, and other disruptive approaches to trade policy.”
- The “new era” would have happened whether or not Trump was elected, according to Jeddeloh.
- Jeddeloh explained that the administration is employing a two-step approach to trade which includes first getting the dollar down (so exports are competitive) and then negotiating trade deals. He believes that a deal will be made with Mexico as well as for certain industries in China, but probably nothing will be accomplished with Canada in the near term.
- Regarding his prediction for an economic downturn, Jeddeloh cited Brexit as a “major risk” because there isn’t likely to be a plan in place until March 29, “the official date of the United Kingdom’s departure from the European Union. That’s too long.”
- In the U.S., he said, the economic slowdown will be driven by the market, and the “low for the market should come in the fourth quarter,” adding, “the S&P will fall to somewhere between 2600 and 2650—a 7% to 8% decline; the kind of correction we would normally get but haven’t because of all the economic stimulus.”
- Other risks, he explained, include the Treasury yield “going over 3%” and that “multiple investigations will hit a peak. If you look at the news flow, the stress is starting to build. The market has ignored the Mueller probe or any other probe. I think it’s going to get really messy.”