Mnuchin has an important warning for stock-market investors

Beware, stock market investors! Tax cuts are crucial to maintaining their record-setting ways, according to Steven Mnuchin. ‘To the extent we get the tax deal done, the stock market...

Beware, stock market investors! Tax cuts are crucial to maintaining their record-setting ways, according to Steven Mnuchin.

‘To the extent we get the tax deal done, the stock market will go up higher. But there’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.’
—Treasury Secretary Steven Mnuchin

The Treasury secretary made his comments during a recent interview with Politico and said stocks could take a significant tumble if tax cuts aren’t implemented soon.

“There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done,” Mnuchin told Politico Money in a podcast.

Wall Street equity benchmarks have been on a tear since President Donald Trump’s surprise election victory in November, on a campaign promising Wall Street-friendly policies, including infrastructure spending increases, loosening of crisis-era regulations and the aforementioned changes to tax policy, which includes cuts.

The Dow Jones Industrial Average DJIA, +0.61% has gained more than 26% since last year’s presidential election, the S&P 500 index SPX, +0.08% has rallied nearly 20%, the Nasdaq Composite Index COMP, -0.01% has climbed almost 28%, while an index of small companies, the Russell 2000, the most likely to benefit from tax reform, has gained more than 25% over the past 11 months, according to FactSet data.

It isn’t clear, however, that the hope of tax cuts have been the sole cause of those gains. Corporate earnings have so far been healthy and the global economy is taking part in a rare synchronized uptick that has seen Germany’s stock market, the DAX 30 index DAX, +0.25% and the Nikkei Stock Average NIK, +0.13% trade at or near record territory, market participants point out.

An unscientific Twitter poll by MarketWatch showed 68% of respondents believe tax-policy changes are baked into markets, while 32% say the rise to records is a function of better-than-expected quarterly results.

How much is tax reform already priced into stocks?

— MarketWatch (@MarketWatch) October 11, 2017
The effect of not having tax reforms in place soon, however, appears debatable, with 85% indicating that it will have no impact or little impact given the strength of corporate results. Only 1 out of 4 polled believe that the market will crash:

How would failure to pass tax reform by the 1st quarter of 2018 impact stocks?

— MarketWatch (@MarketWatch) October 11, 2017

 

Source: MarketWatch 

Featured Image: AP Photo/File 

Inset Image: Reuters

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Politics
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