The prospect of federal tax cuts, whether they come yet this year or in 2018, is among reasons investors may be bullish on the U.S. stock market, the chief investment officer for Milwaukee’s Cleary Gull Advisors said Tuesday.
Brian K. Andrew said a reduction in the corporate tax rate would be expected to lead to higher earnings for American companies.
“While we might not see action this year, I think it’s unlikely that we don’t get some kind of tax cut between now and 2018,” Andrew told a luncheon gathering of about 70 clients Tuesday at the downtown Milwaukee Marriott. “If it takes until the middle of 2018, the likelihood that it may be retroactive to the beginning of the year goes up.”
Cleary Gull is an investment unit of Racine-based Johnson Financial Group, the parent company of Johnson Bank.
In a dual presentation with Andrew that considered both bull and bear scenarios for the market, Joseph F. Hickey, senior portfolio manager for Cleary Gull, acknowledged that a tax cut would help earnings.
However, Hickey noted that the economic expansion, while long-running, is the weakest since the World War II era.
Hickey said for people with a gloomier forecast for the market, one reason would be that the tax cuts could come too late.
Taking a bearish viewpoint – at least for the sake of argument during the presentation – Hickey said wage growth until recently has been slow, despite low unemployment in the United States.
“The wage growth tends to go up as everybody gets to work – except this time,” Hickey said. “We haven’t had a lot of wage growth. And that’s perhaps why the middle class – if we have 2% inflation and 2% wage growth – feels like they’ve been going nowhere over the last six or seven years.”
Andrew said he expects the business expansion to continue. Among other factors with a potential positive impact on the stock market: monetary policy, a strong employment picture, strong consumption and an “energy dividend” for energy prices that shouldn’t balloon.
While a recession doesn’t appear to be on the near-term horizon, the economy isn’t booming, Andrew said.
“The economy isn’t growing at 4%. We’re barely growing at 2%,” Andrew said. “A lot of people don’t feel that great about this expansion because we’re not that far away from a recession with a 2% growth rate.”
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