The stock market’s performance in 2017 has been a surprise to almost everyone. Even those who thought that a Trump presidency would “drain the swamp” and unlock the gridlock have to be surprised at the market’s strong performance as the swamp has not been drained and gridlock remains.
So why is the market continuing to trend higher? I’ve been saying for quite some time that the market has been trending higher because investors have been anticipating three things that, if done correctly, translate to higher economic growth: health care reform, income tax reform and infrastructure spending.
Health care reform, at the moment, does not appear close to getting done. The Republicans tried three times to either repeal and replace or just repeal the Affordable Care Act and have failed. Whether this ever gets accomplished is unknown.
Income tax reform is currently in the proverbial batter’s box, but it remains unclear if enough bipartisan support will be garnered to pass sensible reform. And by bipartisan, I include the partisanship within the Republican Party as well, which seems to be fractured into several groups with different ideas about how to reform the tax code.
Whether we will even get to infrastructure spending before the end of this year is anybody’s guess. What should have been learned by now is that trying to ram any type of legislation through Congress is not going to work, as not enough votes are out there to do that.
In its place, more thoughtful legislation should be proposed that actually accomplishes the goal of fixing the decaying roads and bridges across the country, revamps an antiquated tax code that is way too large and full of special interests to really be fair any longer, and creates affordable health care coverage for everyone — while still providing a safety net for those who either cannot afford coverage or who are ill and need considerable care without going bankrupt.
The recently released preliminary data from the University of Michigan Consumer Confidence Index for August shows a sharp increase in August from July. Much of this was due to an increase in consumer expectations, which asks consumers about their expectations of their personal financial situation and the economy over the short and long term.
Interestingly enough, the results were similar for both Democrats and Republicans.
Consumer confidence indexes are viewed as leading indicators for the economy because consumers tend to spend more money when they are confident about their personal financial situation. The indexes can vary widely from month to month and are especially susceptible to current events occurring in the world. This can quickly turn sentiment higher or lower depending on what has been occurring.
So while consumers may be confident now, it will be interesting to see how confident they remain if indeed tax reform and infrastructure spending legislation do not pass. Will confidence remain high or start to wane, based on people’s political affiliation? Stay tuned — but don’t try to time the market.
Howard Hook is a CPA and Certified Financial Planner with the wealth management firm of EKS Associates in Princeton, N.J.
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