BRIDGEWATER: ‘The likelihood of a significant Trump fiscal boost has diminished’

U.S. President Donald Trump in Washington, U.S., April 18, 2017. REUTERS/Joshua Roberts U.S. President Donald Trump waves as he walks from Marine One as he returns from a day trip to Wisconsin on the South Lawn of the White House in WashingtonThomson Reuters

The world’s largest hedge fund manager is losing faith in the Trump bump.

Bridgewater Associates’ co-CIO Greg Jensen and senior investment associate Atul Narayan laid out their reasoning in a client note out Wednesday morning.

The client note is titled “US growth has slowed and the likelihood of a significant Trump fiscal boost has diminished.” A copy of the report was reviewed by Business Insider.

In short, the note says that investors are losing faith in all the things that spurred a market rally in the wake of Donald Trump’s election expectations — expectations that spending and reforms would boost economic growth and inflation. It’s a view that’s now creeping across Wall Street, pushing stocks lower.

“The remaining outperformance, which represents a combination of rising expectations of future growth, improving sentiments, and expectations for deregulation, etc., is small,” the authors wrote about the financial markets.

Deregulation “may still be somewhat of a trigger for economic growth, but the pushes on infrastructure and tax reform appear more and more modest, and more and more stuck,” the authors added. In turn, “there is less pressure on the Fed to tighten, and we expect they will adjust.”

Jensen and Narayan go on to say that they think comprehensive tax reform is “ambitious.”

“Our expectations are for less impactful tax reform and modest tax cuts given the ongoing concern of many congressional Republicans about the deficit,” the authors wrote.

Spokespeople for Bridgewater didn’t immediately respond to a request for comment.

Here are other highlights from the note:

  • Corporations. “The corporate statutory tax rate is likely to land somewhere around 25% (from 35% currently), with some combination of immediate depreciation of capex for equipment (but not IPO or structures) and curtailment of net interest expensing… we expect the odds of a BAT as currently proposed to be low.”
  • Infrastructure. “Infrastructure spending will be slow and difficult to implement.”
  • Corporate taxes over personal taxes. “The administration seems to be favoring meaningful middle income tax relief, but less net tax reductions for higher tax payers… the Trump administration’s desire to give tax cuts for high-income households beyond the potential cuts from repealing the Obamacare tax increases is limited.”
  • Trade policy. “Recent Trump statements suggest a policy shift toward a more modest protectionist agenda.”

Ray Dalio, Bridgewater’s founder, raised similar concerns regarding changes to fiscal policy and deregulation in an interview with Business Insider’s Henry Blodget earlier this month.

Westport, Conn.-based Bridgewater manages about $150 billion companywide, according to its website.

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