“It takes a licking, and keeps on ticking.”
One of the most enduring commercial tag lines ever is this chestnut that promoted Timex watches for over two decades. The voice over man, John Cameron Swayze, was perfect for the role. Watches were put under water, run over by vehicles, and left out in thunderstorms. And still, they kept on ticking.
Kind of like today’s stock market, don’t you think?
Let’s just take a brief overview of recent events that could have derailed equities’ positive performance:
- Hurricane Harvey devastating southeast Texas with record flooding
- Hurricane Irma causing unprecedented wind damage to Florida
- Hurricane Maria basically demolishing Puerto Rico
- Brinksmanship, including near daily insult trading, potentially leading to war with North Korea
- Failure of Congress to pass the repeal and replacement of Obamacare (again)(again)(again)
- The eighth month of the Trump Presidency without a single legislative victory
- Continuance of the Russia investigation by Special Prosecutor Robert Mueller
- A potential “Katrina” moment as the humanitarian crisis worsens in Puerto Rico
- Further polarization among Republicans as former judge Roy Moore wins Alabama Senate primary
- Federal Reserve Chairwoman Janet Yellen becoming more hawkish on monetary policy
- September being a historically poor month for stocks
In earlier times, any one or two of these events would have at least made the stock market blink. But this market seems to have a life of its own. Why? The answer is as simple as one word – promise.
Yes, the first major promise of the Trump administration has been broken (many times). Reforming health care finally has moved to the back burner since it will now take 60 votes in the Senate to effect major changes. Frankly, as I’ve stated before, I feel that the President and Congress erred significantly in tackling Obamacare first. The project wasn’t the proverbial low hanging fruit that many thought it would be. Wall Street has been far more interested in two other promises: tax reform and infrastructure.
Congress is now in the process of a rapid pivot away from healthcare to tax reform discussion. As we remember from prior history in the Reagan and George W. Bush administrations, this isn’t exactly an easy subject either. However, it’s a fact that the United States has a higher corporate tax rate than the vast majority of developed nations. It’s also a fact that the tax code is far too complex (even for me as a CPA). Finally, it’s a fact that many multinational corporations have stashed billions of dollars overseas in an effort to avoid being taxed.
The promise of tax reform is keeping the fire burning on Wall Street. Pundits can list the positives – more money in consumers’ pockets; job creation by corporations with a lower tax rate; repatriated dollars recycling through the monetary system; overall growth stimulus. Whether any of these concepts prove to be true will be seen. However, for now, it’s merely the promise that’s working. If substantive tax reform can be followed by infrastructure initiatives, then we’ve got a double header.
My sense of things is that there’s more risk to the upside than the downside for equities. Of course, we could have a garden variety correction of 5-8% at any time. We’re long overdue for one, and frankly, it would be both healthy and normal. Even though stocks appear to be fully valued at present, the promises of tax reform and infrastructure would possibly be a further impetus for corporate earnings. If this occurs, traditional market metrics and valuations would not have to be stretched.
After many missteps in Washington, it’s time to get things done. This bull market, while admittedly long in the tooth, should still have legs if our elected officials can get their acts together. In the meantime, despite all of the lickings, it still keeps on ticking.
Please feel free to give me your thoughts and comments. As always, I am grateful for your continued trust and support. I look forward to hearing from you soon.
The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.
Diversification cannot assure a profit or guarantee against a loss.