Since Trump’s win, investors have fallen for 'fairy dust': Citi economist

Stocks have soared to all-time highs since the election of Donald Trump, but some market watchers may say the rally has gone too far, too fast.

William Lee, head of North America economics at Citigroup, said Thursday on CNBC's "Trading Nation" that the markets have gotten "way ahead of themselves" on hopes that financial services regulations will ease and the government will spend bigtime on infrastructure under Trump's administration.

"Everyone is sprinkling around the word 'infrastructure' like some fairy dust. Like somehow, infrastructure is going to make the world better. Yes, it could, but not the kind of fiscal infrastructure spending that President-elect Trump is talking about," Lee said.

Lee said Trump is referring to private companies financing infrastructure investment largely associated with major toll roads and bridges, which represents less than 1 percent of all roads in the U.S. According to Lee, such infrastructure spending would make a minor dent in the "infrastructure rebuilding we really do need."

The prospect of increased infrastructure spending sent the price of industrial metal copper to a 16-month high in the days following the U.S. election.

Spending on infrastructure isn't the only facet of market sentiment postelection that leads Lee to believe that investors — and market commentators — are pricing in far too much optimism heading into the new year. And with the U.S. dollar surging, hitting its highest level in over 13 years since the election, along with higher interest rates, Lee said he has in fact marked down his 2017 GDP growth projection from over 2 percent to 1.75 percent.

"Monetary policy is really on hold right now because everyone is trying to figure out exactly what the fiscal contour is going to look like. Our best guess is that there's going to be a positive fiscal impulse that stimulates the economy. But with all of the haggling that's going to go on in Congress, that probably won't hit until 2018," Lee said.

The immediate implementation and effects of a "massive fiscal stimulus program" under Trump that investors anticipate seems far-fetched to Lee, and market watchers are taking for face value the prospect of fiscal stimulus meaning more GDP growth.

But, he points out, "the timing of fiscal stimulus matters, and the timing is going to be further out than investors think."


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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