Stocks at home and overseas have experienced a run up in prices over the last six months. After the S&P 500 Index claimed a new high on March 1, it has more or less held within a narrow range. That hasn’t been the case for the tech-heavy NASDAQ Composite, which topped 6,000 for the first time last month. Admittedly, it’s an impressive comeback for an index that was clobbered in the post-dot-com era. But it’s a testament to the resilience of the U.S. economy and U.S. markets.
Table 1: Key Index Returns
Source: Wall Street Journal, MSCI.com, CNBC, Morningstar
MTD returns: March 31, 2017 – April 28, 2017
YTD returns: December 30, 201 – -April 28, 2017
*Annualized, **in U.S. dollars
For the broader market, we’ve been in a wait-and-see mode. For starters, there is the political angle, which has been a distraction. Republicans have yet to agree on a replacement for Obamacare. For now, it remains the law of the land. But investors are more interested in tax reform and a significant cut in the corporate tax rate. While a cut in the rate corporations pay could conceivably boost the incentive for firms to invest and expand, from the standpoint of a simple math equation, a lower tax rate translates into higher after-tax corporate profits.
And it’s rising profits that fuel stocks longer term.
Late last month, Team Trump unveiled its blueprint for tax simplification and tax cuts. And we’ve already received questions about its perceived impact. Using data from the official White House website, Trump would like to:
- Take the seven tax brackets we have today and reduce them to three: 10%, 25%, and 35%. But no mention of income thresholds.
- Double the standard deduction for married people to $24,000.
- Provide aid for child and dependent care expenses.
- Repeal the AMT — the alternative minimum tax.
- Repeal the Medicare surtax related to Obamacare.
- Repeal the inheritance tax, the so-called “death tax.”
- Retain deductions for mortgage interest, charitable giving, and retirement; all others would be repealed, including state and local taxes and property taxes.
- Reduce the corporate tax rate from 35% to 15%.
Let me just say this: Trump’s proposal is simply a framework he hopes will set the tone for the upcoming debate. Much more work must be done before details emerge. If or when tax reform becomes a reality, we can make any necessary adjustments to your financial plan, capitalizing on positive changes or minimizing any provisions that may not be advantageous.
Until then, we are just speculating.
That said, we understand you may have concerns. If so, never feel as if you can’t pick up the phone and call us.
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