One Thing Is Driving The Market Higher [Right Now…]

by Financial Design Studio, Inc. / December 10, 2017

Just One Thing In The Tax Bill Is Driving The Market Higher

We’ve all been listening to the commotion about tax reform.  You may know the House of Representatives has passed their version of a tax reform bill.  And the Senate has also passed their own version of a tax reform bill.  So now the two sides are coming together to work through the differences, creating one bill that can be signed into law.

Why does it seem so confusing?

You may find yourself confused because in one version the home mortgage interest deduction is higher than the other.  Or in one bill state and local taxes are no longer an itemized deduction and in the other they are.  It is this back and forth of what is or isn’t included in the two versions that is causing confusion.

The ONE Thing That Matters…

But, in all the details of how tax reform will impact individuals there is one thing that investors like, which is driving the market ahead.  That one thing is the corporate tax rate lowering to 20%.  Like the other items up for debate, the final percentage could change.  But this one thing is driving stocks of domestic companies higher because corporations would pay less in tax and have more money available to them.  Whether this be used to hire, increase wages, increase capital spending, further research and development, buy back stock, or increase dividends, companies will automatically be more profitable.

Corporations want certainty.  They want to know that they can plan ahead and make decisions on known facts.  See our earlier article discussing The Cost of Uncertainty to understand  more in depth why this matters.  We believe this one thing in the tax reform package being debated and finalized now is what is driving this market higher.

Whether we like the final version or not, stock prices have built into them the expectation that tax reform pass.  If a tax reform bill does not pass then we can expect to see a market pullback.  But it does seem fairly likely that a bill can be passed and maybe even before Christmas.

We know you’ll be watching to see with us.  Keep up with your consistent actions toward reaching your goals, even in the midst of news that can drive the market from day to day.



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