Here is a view of what is or can influence the stock market in the coming months:
On the economic front earning have been relatively strong. Politically the repeal of Obamacare failed, the North Koreans continue to test their ICBMs and the Russian investigation seems to be getting amped up. Through all of this the markets just continue to move to new highs.
The talk of quantitative tightening and higher interest rates have been pushed aside. As, I mentioned before, there are really no investment alternatives but the stock market, with really no returns in the money markets or CDs. Money keeps on flowing into mutual funds and they are getting invested. Bad news? What bad news?
Who would have thought that the fed would actually control interest rates or that they would produce the largest quantitative easing in the history of the world. The dollar has been falling like a rock. Here’s a technical view on the dollar from Gary Savage with the Smart Money Tracker.
The dollars behavior has increased sales abroad, since our products are more competitive.
If you’ve been reading the Nobel Prize winning economist Robert Shiller from Yale University, he has drawn comparisons to today’s market and the pre-1929 markets. For those who don’t remember, you young ones, that was before the great depression. He has been right before, though in today’s markets much has changed.
Now let’s take a look at market valuations using Robert Shiller’s price to earnings study. I won’t get into how he comes up with these numbers.
The markets could move higher with the catalyst coming from tax reform. What would that look like?
Corporate tax cuts – lowering the rate from 35% to the 15% to 23% range
Overseas profit repatriation tax holiday – temporarily lowering but not eliminating this tax rate
Double the standard deduction and other targeted individual tax cuts
The first two would have direct market implications, while the third seems more geared toward middle class to lower income households.
Perhaps these moves, if they become law, will provide the impetus need to push the market into a full bubble phase.
Needless to say, the markets face some challenging issues moving forward.
Confused just yet? You need a plan…..