March brought forth some upsets in the financial markets as the Trump Administration’s big push to repeal the Affordable Care Act hit the skids. Overall, investors received mixed signals from both the markets and from leading commentators, as the experts tried to assess the extent of the damage, if any, to President Trump’s overall agenda.
On the positive side, strong economic data published at the end of March helped to lift the Dow Jones Industrial Average, the Standard & Poor’s index and Nasdaq back up after investors saw an eight-day losing streak, which took these major market indicators down to their lowest levels since early February. The National Association for Business Economics gave investors good news, revealing that the 50 economists tapped in their recent survey predicted a modest but solid growth rate of about 2.3 percent this year and 2.5 percent for next year. Interestingly, the economists surveyed predicted this modest growth despite a majority (70 percent) suggesting that the markets are overly eager in their anticipation that President Trump’s proposed tax cuts and infrastructure spending will boost stock prices. Here are some of the key findings of the survey.
- Economists were more bullish about hiring than they had been back in December 2016, and now expect employers to add an average of 183,000 jobs per month (up from earlier forecasts of 168,000 per month).
- Most expect the President’s tax reform proposals to pass in the second of half of 2017 – although about 20 percent believed it would take until 2018 for these measures to be approved.
- The majority of those surveyed expect the economy will have to wait until 2018 to see any benefits from an infrastructure spending package, even if it passes this year without a hitch.
More Strong Data
Furthermore, the consumer confidence index has hit its highest level in 16 years; house prices are at their highest point in almost three years; and stock market analysts are expecting corporate earnings to hit their expected targets and show solid year-on-year growth. In addition, indications that the Federal Reserve will stay on track and raise base interest rates again are viewed as a further positive indicator (because tighter monetary policies often are regarded as a good sign of economic health).
Complacency over Political Uncertainties
The defeat of the Trump health care bill has cast a shadow. Those who had not expected this outcome wonder if this failure might foreshadow further problems with President Trump’s promised reforms, such as changes to the tax code and his pledge to roll back government regulations. Some investment experts believe that the markets were reflecting a little too much optimism over Trump’s reform agenda. Once doubts surfaced, some investors began to pull out of the equity market. According to Reuters, investors withdrew some $1 billion from stock funds during the third week of March. Some market gurus believe the markets have done fairly well in light of the administration’s failure to make good on a key election promise, and some are braced for more market volatility as we head into the second quarter.
The above is intended as general commentary and is not meant to be a substitute for specific advice from professional tax and investment experts.