Will Tax Cuts Matter?

In my inbox today was a report from Zacks Investment Research and their take on the recent tax package. I couldn’t say it better myself, so I won’t try! Here is all you need to know…as an investor. I will note that Zacks has not, in general been a fan of President Trump which I think adds credibility to their position.

“Sadly, there’s been a lot of partisan bickering about whether it’s a good deal or not. But politics aside and focusing just on the impact for stocks, it’s definitely a win for the market.

Corporate tax rates will be cut to the lowest level in 68 years, going all the way back to 1949. It also provides incentives to repatriate accumulated profits from overseas (estimated at more than $2.5 trillion dollars).

And what will businesses do with all of those profits?

Plenty!

There’s no doubt some of that will go to stock buybacks. But with the US suddenly becoming one of the most business friendly countries in the world, you will see massive new corporate investment. This includes relocating foreign operations back to US soil; building new plants to expand; and the purchase of new equipment and technology to see it all through.

All of this economic activity means more new jobs. And with more jobs comes a stronger consumer, which means more consumer spending. That, of course, is good for business, and the whole virtuous circle is reinforced, leading to decades of new prosperity.

As for the individual tax cuts, the vast majority of filers will see a benefit. And with more money in people’s paychecks as early as next February, you should see already robust consumer spending increase even more. And since 70% of GDP is tied to consumer spending, that’s another boost for the economy.”

Next week I will post my 2018 Outlook in which I do point out, that although the tax cut is a big positive, the Fed will likely continue to raise interest rates under the cover of expanding GDP. The combination will certainly bring volatility back to the markets.

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bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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