Sometimes, the confluence of place, time and global events leaves one with a sense of irony that illuminates the soul.
That’s what a friend and I reflected on last Friday morning while drinking coffee just steps away from the U.S. Capitol. I happened to be in our nation’s capital last week, and the irony of that visit has yet to escape me.
That irony, of course, is that for over a year, I’ve been writing about the main force animating the bullish sprits on Wall Street — the hope for the first real tax reform in some three decades.
Well, on Friday, Congress came to an agreement on the tax bill, finalizing the reconciled House and Senate versions. Then, today, Congress has voted to officially pass tax reform. Within the next day or two, President Trump is expected to sign the landmark legislation into law.
That means the president and the Republican Congress will have delivered on the key pro-growth proposals promised by candidate Trump, and then President Trump, for the past two years.
Yet in another influx of irony enveloping this issue, now that tax cuts are basically a done deal, the market will be forced to recalibrate its catalysts going into 2018. Yes, the markets and the economy will stride into the new year with a tax-cut tailwind firmly at their backs. However, the question then becomes… What next?
After all, the market is notorious for being the ultimate, “What have you done for me lately?” arena, and one that’s perpetually in search of the next big catalyst capable of either vaulting it higher — or slamming it back down to earth.
Figuring this question out is going to be the key to solving the riddle of the markets in 2018. And while this is a task fraught with peril for even the best prognosticators in the business, it is a task I shall embrace vigorously.
The reason why is because getting the market right and helping investors succeed in one of life’s most important facets is something I love, something I feel a calling to do and, frankly, something that I am really good at.
Moreover, I find few things more noble than helping my fellow man increase his/her happiness through smart financial decisions. So, let the process of solving the 2018 riddle of the market begin!
And, as we begin, let’s keep in mind that while some could argue that tax reform passage is already priced into stocks, the official removal of the possibility of failure on tax reform eliminates another obstacle we know has held some investors back this year.
More importantly, I expect tax reform to help corporate bottom lines in the coming quarter. I also expect the economy to continue to grow at a 3%-plus pace. And with earnings strong, the economy growing, unemployment at near-record lows, consumer confidence at near-record highs and what appears to be a predictable Federal Reserve — we have a recipe for another year of gains in the market.
So, will that recipe turn out to cook up another big year for the bulls?
I think it will. However, my skeptical nature forces me to adopt a “show me, don’t tell me” posture towards markets — as well as just about everything else in life.
Let’s just say I am approaching 2018 with a “cautiously optimistic” countenance.
“Even the striving for equality by means of a directed economy can result only in an officially enforced inequality — an authoritarian determination of the status of each individual in the new hierarchical order.”
— Friedrich August von Hayek
The brilliant Austrian economist was one of the greatest thinkers in his field. He also rarely failed to point out the absurdity of politics intermingled with economics. Here, he provides a thoughtful retort to any criticism of the tax plan (or any government plans) that strive for the so-called “equality” of outcome. If you want everyone equally badly off, then just allow big-government tyranny to reign.
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