This time of year often presents an opportunity for some additional rest and relaxation, but there is always the possibility for activity in the markets—or as was the case last week, the government.
Last Friday, December 22, 2017, President Trump signed the 2017 Tax Cuts and Jobs Act into law. Although the depth of detail of this new law may be intimidating, on balance, its passage may provide firmer footing for investors as we begin a new year.
The $1.5 trillion tax cut is a complex, 1,000-page law intended to spur economic activity through a reduction in both individual and corporate tax rates, and simplify the tax code by eliminating or trimming a variety of deductions and exemptions.
The new tax law has important implications for major corporations, small businesses, and individual taxpayers, and is designed to shift the trajectory for economic growth, the federal budget, monetary policy, and perhaps most critically for investors—corporate profits.
There are legitimate concerns that the new law could increase the potential for higher inflation and weigh on the deficit. Yet U.S. consumers may be poised to reap approximately $100 billion in 2018 and $200 billion in 2019 thanks to the individual tax cuts. Meanwhile, U.S. corporations can potentially boost investment from a combination of lower taxes, repatriated profits, and immediate expensing, further supporting economic growth.
Perhaps the biggest immediate takeaway for investors is that the accelerated timeline to pass the law has decreased uncertainty. As a result, individuals and businesses have the opportunity to begin planning around the changes and pulling forward the new law’s impact.
The new tax law should help provide fiscal support for the economy as monetary support is withdrawn. And although it helps decrease the chance of a recession in 2018 and even in 2019, market volatility may increase from the extraordinarily low levels that persisted in 2017. Nevertheless, for markets and the economy, the new law appears to provide a firmer launching point as we enter the new year.
I wish you a healthy and happy 2018. And as always, I encourage you to contact me with any questions.
Bryan Foronjy, CFP®
Founder and Principal Wealth Manager
CA Insurance Lic. # 0F84170
Bryan Foronjy is a registered representative with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group LLC, a registered investment advisor. Strategic Wealth Advisors Group LLC and Foronjy Financial are separate entities from LPL Financial.
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*Based on a trailing 12-month price-to-earnings ratio (PE) of 19–20. Forecasts are from our Outlook 2018: Return of the Business Cycle publication.
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Economic forecasts set forth may not develop as predicted.
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