Are Fiscal Stimulus Expectations Too High?

A virtual consensus exists about the probability of a fiscal stimulus under a Trump presidency. Most only debate its size and timing. But that doesn’t appear to be dampening market expectations, with the stock market continuing to set new highs amid a selloff in the bond markets. Much of this market exuberance, presumably, stems from the view that the fiscal stimulus will ignite the economy. Which is perhaps why Bank of America Merrill Lynch is advising caution.

“We expect fiscal stimulus and stronger growth in the medium-term, but we worry lags will be longer than market expectations,” the bank said in a research note Dec. 5. “The short-term risk, in our view, is for disappointment given the complicated process of...