I’ve been a 76ers, Eagles and Phillies fan for a long time. There haven’t been many good years in there. One World Series title, one NBA Championship and no Super Bowl victories. Most years, the teams have been hard to watch. Brutal, even. I’ve noticed one common thread in all this misery: When the team shows the slightest bit of improvement or optimism, you get deluged with advertisements for Season Tickets. The Sixers could have ten wins and sixty losses, but if they win two out of three , “Get your season tickets for next year NOW!!!!!”. Obviously, they are just trying to capture the momentum or the “hype”. I get it. There is nothing more exciting (and easier to sell) than an up and coming team. That’s why the Eagles get sixty thousand fans at every game without ever winning a championship. You don’t sell the steak, you sell the sizzle!
That brings me to the current leader of the free world and the optimism that has followed his election. There is nothing more appetizing for professional traders than the promise of future profits. I can’t recall any better optimism factory than the Donald Trump campaign. And the stock market has been buying every bit of it. Rightfully so, in my opinion.
We have three things that are driving the hype wagon:
1.) Repeal and replacement of Obamacare.
2.) Less regulations, specifically on financial companies.
3.) Corporate income tax reform
The first two items there have been grabbing most of the headlines lately but, in my opinion, the long term potential for the market lies in the corporate income tax reform promise. As we know, a material reduction in the corporate income tax will expand profits for the companies, which would, in my opinion, impact stock prices for the positive.
Here’s where the hype and the momentum come in. The progress of the Obamacare repeal and the regulation reform create optimism for the tax reform getting done. Anything good that is reported as far as President Trump (still feels strange to say that) being able to make good on his promises of healthcare and regulation bodes well for the taxes. I believe that this is the single driver of the market right now.
Think about your favorite basketball team taking a lead late in the game against a stronger opponent. Its not just the fact that the team has the lead, its the promise of things to come…..the potential for ultimate victory in the end.
For the stock market, the ultimate victory in the end is corporate tax reform. The healthcare and regulations pieces are important, similar to keeping a lead and gaining momentum in a game. Hopefulness and confidence in the agenda will lift the market! Any long term negative outlook and, look out below, the market will be hitting the deck.
DISCLOSURE: THIS ARTICLE IS NOT INTENDED TO BE INVESTMENT ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. PLEASE CONSULT A QUALIFIED ADVISOR TO DETERMINE THE MOST APPROPRIATE INVESTMENTS FOR YOUR PERSONAL SITUATION.