The policy halo effect that provided ballast to the stock market and fueled investor optimism is already being dimmed by political realities, according to Goldman Sachs, which may have negative implications for economic growth.
In a note to clients on Friday, the investment bank noted President Donald Trump's agenda was already running into bipartisan political resistance, with doubts growing about potential tax reform and a repeal of the Affordable Care Act, among other marquee Trump administration initiatives.
Just two weeks into his tenure, "risks are less positively tilted than they appeared shortly after the election ," Goldman wrote. Growing resistance to Trump's executive orders on immigration and financial reform has galvanized opposition while dividing members of the president's own Republican Party.
It has also curbed the enthusiasm of investors, who sent stocks on a roller-coaster ride this week as they struggled to reconcile the new restrictions on immigration with Trump's professed pro-business bent.
"While bipartisan cooperation looked possible on some issues following the election, the political environment appears to be as polarized as ever, suggesting that issues that require bipartisan support may be difficult to address," the bank added.
The balance of risks "are less positively tilted than they appeared shortly after the election," Goldman said, which may blunt the force of future growth.
Some of the recent administrative actions by the Trump Administration serve as a reminder that the president is likely to follow through on campaign promises on trade and immigration, some of which could be disruptive for financial markets and the real economyGoldman SachsÂ
Amid reports that top GOP members are reportedly becoming nervous about the impact of a full-fleged repeal of health care, that political pushback "does not bode well for reaching a quick agreement on tax reform or infrastructure funding, and reinforces our view that a fiscal boost, if it happens, is mostly a 2018 story."
Indeed, Utah Republican Senator Orrin Hatch said that he was "not very enthused" by the prospect of broad tax reform, The Associated Press quoted Hatch as saying. A politically thorny proposal for a "border adjustment tax" —seen by some as a linchpin to force Mexico to foot the bill of building a border wall —is also dividing members of the GOP.
"Some of the recent administrative actions by the Trump Administration serve as a reminder that the president is likely to follow through on campaign promises on trade and immigration, some of which could be disruptive for financial markets and the real economy," according to Goldman, saying that the president's agenda "present risks in both directions."
Goldman still expects a modest fiscal policy boost of about 1 percent of gross domestic product via tax cuts next year, but doesn't believe a border adjustment tax will make it into tax reform. The bank also expects a boost on import tariffs, and lower levels of immigration.
Trump's polarizing travel restrictions on immigrants from seven Muslim-majority countries linked to terrorism have already had negative effects on the tech sector, as well as other visa holders.
Silicon Valley has largely denounced the travel ban, which now threatens to become ensnared in a protracted battle between the executive and legislative branches, and increasing generalized uncertainty.
"Immigration restrictions could lead to an overly tight labor market and a slowing in final demand, and trade restrictions could pose risks to corporate profits and ultimately to growth if trading partners retaliate," Goldman wrote.
--The Associated Press contributed to this article.
