Trump Reversal of 'Lenient' Immigration Will Have Unpredictable Impact on Jobs
Here are some educated guesses about the potential impacts of a new administration on the economy.
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While some districts in California are still counting votes and we do not know the exact makeup of the House of Representatives quite yet, we can make some educated guesses on the potential impacts of the incoming Trump administration on various areas of the financial markets and the economy.
The new administration looks set to be more pro-crypto and that has been a key driver of the recent rally in the bitcoin price. I think we can also confidentially say the incoming political alignment will be more supportive of the domestic E&P sector. The temporary ban on new LNG export approvals will likely be one of the first things that gets reversed by the new administration.
A more free-market-leaning administration is also likely to be more supportive of mergers and M&A activity could pick up in the quarters ahead, including in media, given a less antagonistic FCC. What this means for the DOJ’s antitrust case against Google GOOGL and the potential for making the search giant divest itself of its Chrome browser is unclear.
In addition, the reversal of the "lenient" — to use the loosest of terms — immigration policies of the current administration are a major unknown. First, because it is unclear how much of the massive influx of individuals who have come into the United States over the past few years could end up being deported. Second, what impacts will this have on the overall labor market is anybody’s guess at this point. I don’t think anyone has a good handle on the effects of the current level of immigration has on the jobs markets right now. Given the BLS revised down their previous estimate of annual job growth by 31% this summer, I think that is clear. Does reduced immigration and increased deportation mean wages will rise more quickly in some areas of the economy? Will that have an impact on inflation? These are questions without clear answers at the moment.
It does seem that the current administration is intent on escalating the situation in Ukraine by lifting restrictions on what targets U.S.-supplied missiles can be used and by supplying anti-personal mines that are banned in most countries. What, if any, impacts those changes have on potential peace talks are an unknown. Then we have the new Department of Government Efficiency and what potential changes that effort could have on the federal government in the quarters ahead.
Finally, in order to keep mortgage and other interest rates down in an election year, the Treasury Department largely used short-term Treasury bills to finance the rapidly growing federal debt. Short-term debt instruments, defined as two years or less in duration, now make up approximately 30% of the overall federal debt, up significantly from 15% in 2023. If that reverses under the new administration, which seems likely, it could be a headwind for longer-dated debt yields including 30-year mortgages. Hardly what a moribund housing sector needs with existing home sales in 2024 at their lowest annual levels since 1995.
With homebuilders like Toll Brothers, Inc. TOL and building material names like Eagle Materials Inc. EXP trading right at 52-week highs and with historically stretched valuations, this is one part of the market I believe is very vulnerable to a significant pullback in the months and quarters ahead.
And those are some thoughts on how the lay of the land may change for investors with a new administration on the horizon.
At the time of publication, Jensen had no positions in any securities mentioned.
