Monica Guerra on Policy Uncertainty, Deregulation, and 2026 Growth Prospects

Policy Uncertainty and Negotiation Stance

• ⚠️ The immediate policy outlook is not yet clear, with Democrats balancing a desire for a stronger stance against Trump with the risk of a government shutdown.
• 🗓️ September is identified as a key month for budget negotiations, where tax cuts and spending cuts will be debated, potentially weakening the President's negotiating position.
• 📉 Historically, markets tend to look past government shutdowns, but this time, increased severity of cuts or layoffs could be a concern.

Deregulation and Market Expectations

• 📈 Certain sectors, particularly financials, have seen gains based on hopes of deregulation, returning to pre-election levels.
• 🎯 The full benefits of deregulation and growth policies are seen as a 2026 story, with 2025 focused on understanding the new normal and government restructuring.
• 🏦 Deregulation for community banks is highlighted as a potential driver for bringing more capital and access to lower-income consumers and small businesses.

Tax Policy and Market Pricing

• 📊 The bond market's muted reaction to inflation data suggests it may be anticipating the impact of future tax cuts on the deficit.
• 💰 The focus for taxes is on corporate tax rates, with the market currently pricing in a reduction from 21% to 15%.
• ⚠️ A significant risk is that the corporate tax cut may not be fully realized, or could be less than anticipated, impacting market expectations.