The SPDR S&P 500 ETF Trust SPY 0.06% is up more than 10 percent since President Donald Trump won the election in November on optimism that Trump’s policies of corporate tax cuts and deregulation will create tailwinds for U.S. businesses. Trump has hired several current and former Goldman Sachs Group Inc GS 0.73% employees to key cabinet positions, including Treasury Secretary Steven Mnuchin.
‘Maximum Optimism’
This week, even Goldman admitted that the Trump-fueled market optimism has gotten out of hand.
“We are approaching the point of maximum optimism, and the S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected,” Goldman chief U.S. equity strategist David Kostin wrote this week.
Goldman believes investors’ expectations for the Trump policy timeline are simply unrealistic. Goldman economist Alec Phillips says Congressional Republicans’ top priority in the next two years is repealing and replacing Obamacare, which will be an extremely difficult and time-consuming process.
“More importantly, the difficulty the Republican majority is having addressing a key political priority suggests that lawmakers might ultimately need to scale back their ambitions in other areas as well, such as tax reforms,” Phillips explained.
Republicans may end up making tax cut concessions in order to gain needed Democratic votes on healthcare reform.
Back in December, Kostin predicted…
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