The market has been soaring through 2017, and basically since the election, but since the announce of the corporate tax cuts in the recently pass Tax Cuts and Jobs Act, the stock market is showing record growth. Taking the corporate income tax rate from 35% to 21%, is basically a 40% tax cut to Corporate America. And they are celebrating.
Individual Tax Relief
The recently passed tax reform was touted throughout the election as something good for Middle-income Americans. While individual rates will decrease, that is only true in the short term. Over the next eight years these tax cuts to individuals will slowly erode leaving almost a 53% increase to some when that happens.
By then the idea is that middle class Americans will be in a much better financial place with higher paying jobs that scaling back the tax cuts little by little won’t matter. It seems we’ll cross that bridge when we come to it.
Corporate Tax Cuts Trickle Down?
Some experts feel that US corporations will spend their newly found money on their highly compensated employees with dividends and stock instead of investing into their work force with higher wages. There has already been an increase in announcements of corporate stock buybacks since the Tax Cuts and Jobs Act was passed.
We will have to wait and see how much corporate America shares in their tax relief with middle income workers – but one thing is certain, tax cuts to companies is fueling a Bull market with never before seen growth.
How High Will it Go?
When we posted our article, How Long Can the Market Sustain its Low Volatility, last September, we were wondering just how long the market will keep its calm. Well here we are 5 months later, and we are still wondering the same thing. This unprecedented surge has market analysts everywhere wondering if it’s soaring too far too fast. Some fear that we’re in a “melt-up”, which is based on emotion instead of fundamentals, is unsustainable, and is always followed by a melt-down.
FOMO (fear of missing out) is fueling the emotional rise and appears to be pervasive in the stock market today. We should not assume that the rally during 2017 and the beginning of 2018 will continue, some experts feel that a correction is long overdue.
The stock market today is more like a stock car on high-octane fuel, and we are all just along for the ride, wondering when we’ll take a pit stop for fuel or if we will just crash and burn.
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