Momentum slowed Markets rallied on Friday after the healthcare reform bill was pulled, not because reforming healthcare was unpopular, but rather because this bill was unacceptable to too many and had become a distraction. Once it became clear that it could not pass, investors seemed relieved that it would be shelved and the path cleared for work on tax reform. But the sense of momentum has slowed. And as investors reassess the chances for robust tax reform, and when it might take effect, will they conclude that their expectations have been too optimistic? The Trump Administration can take a different route. If it feels too constrained by the reconciliation process, it could chose instead to pursue tax reform despite its impact on the deficit. But given the fiscal hawks in the Republican Party, the chances of success are questionable. The economic data of late has been generally solid. Job growth has been strong and wages are growing, and housing is firm. Inflationary pressures are firming. The global economy is also improving. Nevertheless, first quarter growth estimates have come down. The GDP Now model of the Atlanta Fed sees growth of just 1.0 in the first quarter, down from 2.3 percent at the end of January.[iv] Other consensus surveys have also seen estimate reductions, but still anticipate growth near 2.0 percent. Ameriprise Senior Economist Russell Price anticipates first quarter growth of 1.9 percent, and full-year growth of 2.6 percent, followed by 2.7 percent in 2018. That pace should be enough to deliver good earnings growth this year, even without a meaningful impact from policy changes. If there is to be a rethinking of equity valuations, it should be limited on the downside by these improving fundamentals. But, there is still room for disappointment if tax reform fails to impress. Important Disclosures: The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. Ameriprise Financial Services, Inc. Member FINRA and SIPC.
S&P Global Market Intelligence, 'Corporate Tax Cuts Are Potentially A Big Plus For Stocks,' December 1, 2017 http://www.valuewalk.com/2016/12/corporate-tax-cuts-are-potentially-a-big-plus-for-stocks/
Factset Earnings Insights, https://insight.factset.com/
Federal Reserve Bank of Atlanta, Atlanta Fed GDPNow Forecast for 2017: Q1 https://www.frbatlanta.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf
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