Why is the stock market doing well despite Congress' failure thus far to revamp healthcare and doubts about the timing of promised tax cuts?
No, stock market performance is certainly not the final word in judging the economic health of a nation, but it is significant. Thus it is worth asking why the market is mostly going gangbusters at a time when we are worried about Congress' ability to enact President Trump's pro-growth policies.
According to strategists from Voya Investment Management, investor confidence is buoyed by two things they believe will not happen in a Trump administration: as investors see it, there will be no tax hikes or new regulations to regulations on businesses.
Let that sink in: merely lifting the threat of a tax hike and additional regulations buoys investor confidence.
Investors could be focusing on supportive factors such as what’s in effect a “stealth Trump tax cut,” say Voya Investment Management strategists Doug Coté and Karyn Cavanaugh.
“The markets are not waiting to see the whites of pro-growth economic policy’s eyes,” they write in a note.
“The likelihood of President Trump ‘raising’ taxes is nil,” Coté and Cavanaugh say, and markets realize that.
Plus, investors think “the likelihood of increasing meaningful regulation is nil,” the strategists write.
In other words, their view is that markets are not fretting about what has not happened, but instead cheering because higher taxes and new regulations are not on the horizon.
But investors still expect pro-growth policies will be enacted, if not on the hoped-for schedule:
The strategists also sound broadly upbeat about what Washington will achieve, saying “the likelihood of pro-growth economic policies eventually getting enacted is high.”
“These probabilities are ‘stealthily’ making their way into market pricing,” they write.
Earnings reports and good economic news from Europe and China also are factors.
Good earnings reports likely mean more hiring.