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Stock Market 2017 - Wow!


Aren’t you glad now that we didn’t pay attention to the media in 2016, as they whined for weeks about the Armageddon a Trump presidency would wreak on the economy and the market should he be elected? Strangely, they never seemed to offer an explanation for their gloomy outlook. Were they afraid because Trump promised lower taxes and de-regulation?

Many of us remember clearly the results of prior application of free market principles. Whether Democrat (JFK) or Republican (“W” and Reagan), when taxes were cut, the economy was unshackled, and free-market principles were allowed to work, jobs were created, profits rose, incomes rose, and the markets followed suit. After all, business conditions drive markets, whether up or down.

Since it works every time its tried, the only question left was how Trump (a former Democrat, like Reagan) would govern. Most of us were concerned that he would be less conservative, economically speaking, than he portrayed himself. But, as the policies of the new Administration became increasingly clear, the business community realized that things were getting friendlier. Since businesses are primarily run by rational, educated people, they reacted accordingly, creating jobs, ramping up production lines, and committing resources to what they perceived as better times ahead.

How did that work out for us? Here are a few interesting facts:

  • Right now, there are more people working than ever before; over 160 million, in fact, which resulted from the creation of about 1.9 million jobs in 2017
  • The US GDP has never been higher, having reached about 19.5 Trillion on an annualized basis
  • The DJIA closed at record highs 71 times in 2017, crossed over six 1,000-point milestones, and arrived near 25,000, having set new records on average 1 day of every 4

All this begs the question, “Do any of the naysayers ever have to justify their inept suppositions?” Hardly. There are many lessons we should take away from the last 14 months. Here are some of my highlights, with some analysis:

  • Do not confuse political leanings with analysis, as we are all prone to “confirmation bias”, meaning we find it easy to believe things that fit in with our political inclinations
  • Markets, for the most part, are driven by profits, not by political parties or presidents
  • Generally, the market is looking between 6 months and 1 year ahead, and estimating the upcoming business environment
  • Although the business and personal tax cuts were already factored into the market, the outcome is very positive for business in 2018 and beyond

One feature that can’t be overlooked this year was the lack of volatility in the market. Coupled with many investors’ market acrophobia, it will be difficult for uneasy investors to hold on when volatility returns. Base your activity on the economy, rather than daily volatility.

The new Tax Law has been signed and delivered, but it is not sealed yet. There are several loose ends, ambiguities, and errors in the quickly-produced law that will be ironed out over coming weeks. Still, the best bet is that most Americans will be better off, tax-wise, than they were under the old Tax Code. This is a positive indicator for the economy, and by inference for the markets.

As fee-only financial advisors, we have a fiduciary duty to learn as much as possible, as soon as possible, about the tax law changes, enabling us to better serve our clients’ tax planning needs. Future Blogs will address changes in tax planning strategy.

Van Wie Financial is fee-only. For a reason.