BWP Weekly Market Commentary

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BWP Weekly Market Commentary

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TrumpCare

What if Trump and the GOP end Obamacare through the budget process, but are not able to pass a replacement?

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Trump Agenda

What if President Trump and the GOP manage to successfully pass a tax cut plan?
S&P and other forecasters estimate an 11% rise in earnings if corporate tax rates can be cut to 20%
Rising earnings should continue to drive the market forward at a similar pace
Rising rates and inflation are potential risks as the US government deficit widens rapidly.

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Past Crashes

This scenario covers the heart of the global financial crisis, from the collapse of Lehman Brothers until the market lows of early 2009, and examines the max drawdowns of key levers over that timeframe.

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Tech Bubble

What if tech company valuations normalize, erasing the recent outperformance by the Nasdaq?
The Nasdaq has outperformed the S&P 500 by roughly 10% over the last year
Drop in tech valuations might start in private funding (VCs) and spread to public markets
A mild correction in the Nasdaq might ensue, with lesser impacts on other major equity indices.

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Bond Bubble- Rising Interest Rates

This is a historical scenario capturing the changes in the economy from Oct 1993 to November 1994, when 10-year treasury rates rose from 5.3% to 8%. This rapid rise in rates hit fixed-income investors hard, leading to global bond losses of 1.5 trillion over a one-year timeframe.

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Global Conflicts

What if North Korea and South Korea fall back into armed conflict as a result of aggression by the new leader Kim Jong Un’s regime?

A real conflict in Korea would impact the Asian region as investors shunned risk throughout northern Asia. A serious conflict would result in the collapse of the North Korean regime, resulting in a potential intervention by China and the United States. The conflict would likely end quickly, but could result in significant damage to S. Korea’s economy and world trade.

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Fed Unwinding

What if the Fed takes a slow approach to unwinding the balance sheet, and targets a larger final balance sheet?

Janet Yellen has previously indicated the unwinding process could take a decade and may stick with that slow approach

Ben Bernanke has advocated that the Fed maintain a long-term balance sheet far larger than the pre-crisis $900B

This conservative approach may not roil markets, but could still lead to a “taper tantrum” with a quick rebound.

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Debt Cliff

What if the US is unable to make meaningful reforms to Social Security funding resulting in a likely 25% benefits cut in the 2030s?

Social security funding unchanged, leading to 25% benefit cut in 20 years. Younger boomers forced to accelerate asset liquidation, pulling assets from the market. Lack of spending compounds demand problems seen in the economy today.

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