Stock Market for 2018

Dear Mr. Berko: Could you please tell us what you think the stock market will do once this tax bill is in effect? All the people I know say that these tax cuts and changes are bearish and that the country will suffer because of these new rules and regulations. — GD, Moline, Ill.

Dear GD: You should expand your people horizons.

The recent passage of the Tax Cuts and Jobs Act reduces the corporate tax rate from 35 percent to 21 percent. AT&T will be passing out $1,000 bonuses to employees. And companies such as Wells Fargo, Comcast, IBM, Apple, Fifth Third Bank and Sinclair Broadcast Group will also give employees spendable bonuses. Be mindful that corporations may repatriate their $2.1 trillion of profits held overseas to avoid onerous U.S. taxes. Bringing this money home will translate to higher employment plus modestly higher paychecks. So, with consumer confidence at a 17-year high, Americans are again able to borrow money for homes, cars, appliances, etc., with zero money down and payments for 10 years. Visa, MasterCard and American Express expect record revenues and profits this year and beyond. Considering these corporate tax cuts, some suggest that the 2018 gross domestic product could come in 3.2 to 3.5 percent higher. This is bullish for our economy, banks and the credit card industry. And it’s bullish for the stock market, which has had a marvelous run since November 2016.

We have the lowest level of unemployment since 2011. Over 63 percent of working-age Americans have jobs or are looking for one. There are 126 million full-time workers in the U.S. But there are 90 million healthy, able-bodied Americans who’re not seeking employment, a result of addictive federal and state entitlement programs. It doesn’t make sense for an unemployed person to work 35 hours a week and earn $12 more from an employer than he would receive in entitlements. Many believe that the new tax law, with the anticipated wage increases, could encourage 17 million new workers to join the economy. That’s nearly half the population of the state of California. Their additional purchasing power would be hugely bullish. Those 17 million new workers could add $1 trillion to the U.S. GDP between 2018 and 2020 and be a Golconda for Visa (V-$114), MasterCard (MA-$151) and American Express (AXP-$98).

The recent approval of the Keystone XL pipeline will add thousands of jobs and enormously reduce the costs of shipping product to producers and refiners. It will create $138 million in annual tax revenue for states and local entities along the pipeline. It will create $586 million in new taxes for communities along the route. It will create more than $5.2 billion in property taxes during the lifetime of the pipeline. And it will generate additional private-sector investment of about $20 billion for food, lodging, fuel, vehicles, equipment, construction supplies and services. There will be 20,000 well-paying jobs and an increase in personal income for workers by $6.5 billion during the lifetime of the project. Wow! That’s bullish!

We recently broke Russia’s stronghold on fuel sales to Europe. Poland signed a long-term deal with the U.S. for liquefied natural gas supplies. This is bullish for energy suppliers and opens the doors to other former Eastern bloc countries subject to Russia’s reach. We’ve withdrawn from the one-sided Trans-Pacific Partnership, and we’re demanding favorable terms from NAFTA. We’ve resigned from the feckless Paris climate accord, and we’ve reduced our contributions to a debauched U.N. by $285 billion, both of which are gaseous sociopolitical organizations. This is market-positive.

This year, the Trump administration will initiate a major push on infrastructure improvement. There’s a $1.2 trillion plan that includes direct federal spending of $200 billion for bridges, dams, seaports and airports, water infrastructure, etc. This would create millions of new jobs, which would translate to new cars, homes, pleasure craft, clothing, electronics, recreational vehicles and camping equipment. This could generate the greatest long-term stimulus the market’s ever had, potentially putting us on the cusp of a 30,000 Dow Jones industrial average.