Regulatory outlook

It seems clear we are entering a period of big change as the new administration looks to take office on Jan. 20. On a pre-election basis, we discussed the broad differences in the platforms between Vice President Harris and former President Trump. With President-elect Trump's victory and a Republican majority in both the Senate and the House, the markets are trying to assess just how much change might become reality.

Our chart this week pertains to President-elect Trump's campaign rhetoric around regulations. His stance on reducing regulations has been one of the more powerful catalysts for performance within the stock market. A review of the chart shows why this might be additive to growth and, potentially, profit margins for corporations.

This is not to say all regulations are bad. On the contrary, we need well-thought-out rules and regulations for markets to perform efficiently, and as fiduciaries, the lack of regulatory oversight on areas such as trading and safekeeping has been a material deterrent for our involvement in assets like crypto-currencies. De-centralized oversight sounds great until something goes wrong and investors need someone to blame.

Yet, we also know excessive regulations can slow innovation and cost companies billions of dollars annually to oversee and assure compliance. This is particularly true for mid and small-cap companies. Larger companies can scale operations in a way that lessens the impact on profit margins, but mid and small-cap companies find this more difficult, which might very well play a part in why we have materially fewer publicly traded companies today than a decade ago.

On a related note, we also know the regulatory environment is not just at the national level but also at the state and local levels. Industries like housing have a myriad of national, state and local regulations to consider as we try to alleviate the significant housing shortage and an outlook for some relief would be a welcome development.

In summary, as investors and citizens we rely on a set of rules which provide confidence in how our economy operates. However, a review of the ever-increasing level of regulatory and compliance oversight is long overdue.

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