SocGen’s Edwards: ‘Fragile’ US economy will be exposed when Trump’s ‘sugar rush’ tax reform wears off next year

Unlike his “Marmite” character however, the bearish analyst noted how investors have “gorged” themselves on his tax reform.

US equity markets have been in a euphoric state since President Donald Trump passed his historic Tax Cuts and Jobs Act reform, which saw corporation tax cut from 35% to 21%.

He added Trump’s fiscal stimulus was ill-timed for where the US economy is in the economic cycle but “perfect” for the electoral cycle.

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“People either love or loathe Trump. He is like Marmite,” Edwards said. “But you have to be wary when biting into Marmite because it might not be what it seems! The same is true regarding the robustness of the US economy.”

Edwards (pictured) pointed to the US Philadelphia Semiconductor index, which failed to reach a new high in September, as a “clear warning to investors”.

“When the semiconductor index makes a lower high at the same time as the SP 500 makes a higher high, it is usually time to retreat to a defensive position because it suggests that the economy is slowing fast and hence a bear market is on the way.”

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Despite the strong business confidence, the permabear warned there was a “subdued” pace of business investment in the US. If the sluggishness persists once Trump’s US tax reforms have worn off, Edwards said the “underlying fragility” of the economy would be revealed, adding the “aftertaste” would not be pleasant.

“If this is as good as it gets, what happens next year when the sugar rush of fiscal expansion begins to wear off? Marmite sandwich anyone? Yuk!”

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