Everything That Can Keep The Market Moving Forward Can Also Pull It Back
by Michelle Smalenberger, CFP® / October 30, 2017Everything That Can Keep The Market Moving Forward Can Also Pull It Back
Lately, we’ve heard about the good things that can keep this bull market moving higher. However, these same things can also pull it back. Let’s examine two areas where this holds true.
Tax Reform
Keeps Market Moving Higher:
There is optimism that the Tax Reform that we have heard so much about over the last several months can actually be put into place by the end of 2017. And there is time for this to still happen. If not completed before year-end, it could then be enacted in early 2018 and made applicable retroactively to the 2017 Tax Year. Therefore, all hope is not lost for this positive piece of government action to happen even as we quickly approach December 31st. Has the expectation of tax reform already been priced into the market? It does certainly seem that way and we believe that there is still room for this bull market to run even once/if reform becomes a reality.
Causes Market Pull Back:
Now if tax reform is not enacted, this could cause a sizable pull back in the market and loss of the momentum gained earlier in the year. Since there are many details surrounding the specifics included in the reform, spending here or cutting there, ample room for disagreement among lawmakers is a real possibility. For this reason, we could see the potential for nothing getting done. Although this is a likelihood, there is too much at stake.
Federal Reserve Chair Appointment
Keeps Market Moving Higher:
Who is the next person to be appointed to the fill the Federal Reserve chair? This topic has caused much discussion among politicians, the media and investors alike. While many names have been mentioned, there’s no certainty to who will be the final choice. John Taylor is the recent front runner among media and analysts. Experience, timing and knowledge of how to handle interest rate increases in order not stall economic growth are very key considerations. While this item alone will not account for all economic growth or decline, it is important to manage rates and keep inflation in check, especially for where we appear to be in the current market cycle.
Causes Market Pull Back:
The Federal Reserve Chair is an extremely important position. Not only does it determine the interest rates which can be too high or low to stall economic progress but can also spur on economic activity. When the Federal Reserve uses tools like stimulus and rate changes, this creates a dependency by the economy, an unwanted result. Instead, if the economy were left to push through tough economic times and recover itself, it would be better and stronger for it. Knowledge for when these tools are necessary and when they should be avoided is important for someone in this position to have. Like any job applicant, choosing the wrong one can have adverse effects.
In light of all we have experienced and are anticipating related to our investments, here’s a simple formula for you to remember
Potential Market Growth + Healthy Skepticism = Diversified Investment Portfolio
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Michelle Smalenberger, CFP®
I have a passion for helping others develop a path to financial success! Through different lenses on your financial picture, I want to help create solutions with you that are thoughtful of today and the future. I have seen in my life the power of having a financial plan while making slight changes of direction from time to time. I believe you can experience freedom from anxiety and even excitement when you know your finances are on track.