Dow 24000 and the Trump Boom
Companies are bringing cash and jobs back to the U.S. To keep that trend going, tax reform is vital.
By Maria Bartiromo
I’m not in the habit of giving stock tips or making market calls. I’ve never claimed to be an investment strategist. But after spending years reporting on business and finance, I was convinced on the night of Nov. 8, 2016, that the conventional market wisdom was way off target.
As the night wore on and equity traders began to grasp that Donald Trump would become president, stock markets around the world started selling off. In the U.S., trading in S&P 500 futures would eventually be halted after a 5% decline. After midnight, Paul Krugman of the New York Times opined: “If the question is when markets will recover, a first-pass answer is never.”
I didn’t see it that way. For years I’d been hearing anguished people at companies large and small bemoan the growing federal burden of taxes and regulations. Now the U.S. would have a president who intended to reduce this hardship and prioritize economic growth.
When I sat down around 10:30 on election night for a Fox News panel discussion, Dow futures were down about 700 points. Markets like certainty; it was understandable that some investors were selling. Mr. Trump seemed to present more uncertainty than Hillary Clinton, who was essentially promising a continuation of the Obama administration. Mr. Trump’s talk about ripping up the North American Free Trade Agreement, for example, created big unknowns and potentially significant risks.
The election night selloff turned out to be a huge buying opportunity. Companies had been sitting on cash—not investing or hiring. ObamaCare compliance was a nightmare for many business owners. It made them wonder what other big idea from Washington would haunt them in the future. Mrs. Clinton was likely to increase business costs further, while Mr. Trump had vowed to reduce them. Even in the middle of the election-night market panic, the implications for corporate revenue and earnings growth seemed obvious.
The next morning, with the Trump victory confirmed, I told my colleague Martha MacCallum that I would be “buying the stock market with both hands.” Investors began doing the same.
U.S. markets have added $6 trillion in value since the election, with investors around the world wanting in on America’s new growth story. The Federal Reserve Bank of Atlanta is now forecasting the third straight quarter of U.S. gross domestic product growth around 3%.
It’s not just an American growth story. For the first time in a long time the world is experiencing synchronized growth, which is why Goldman Sachs and Barclays among others have recently predicted 4% global growth in 2018. The entire world benefits when its largest economy is healthy, and the vibrancy overseas is reinforcing the U.S. resurgence.
As the end of the Trump administration’s first year approaches, it’s a good time to review the progress of the businessman elected on a promise to restore American prosperity.
Year One has been nothing short of excellent from an economic standpoint. Corporate earnings have risen and corporate behavior has changed, measured in greater capital investment.
Businesspeople tell me that a new approach to regulation is a big factor. During President Obama’s final year in office the Federal Register, which contains new and proposed rules and regulations, ran to 95,894 pages, according to a Competitive Enterprise Institute report. This was the highest level in its history and 19% higher than the previous year’s 80,260 pages. The American Action Forum estimates the last administration burdened the economy with 549 million hours of compliance, averaging nearly five hours of paperwork for every full-time employee.
Behind these numbers are countless business owners who have told me they set aside cash for compliance, legal fees and other costs of regulation. That money could have been used to fund projects that strengthened their businesses. President Trump has charted a new course, prioritizing the removal of red tape and rolling back regulations through executive orders. The Federal Register page count is down 32% this year. Mr. Trump says red tape becomes “beautiful” when it is eliminated, and people who manage businesses certainly agree.
The prospect of tax relief is also raising expectations for growth, as the U.S. prepares to reduce the industrialized world’s highest corporate income tax rate. As with regulation, U.S. businesses don’t need to have the lightest burden; they only need one that’s competitive with the rest of the world. As Rep. Jeb Hensarling (R., Texas) told me recently, when Washington simply “stops the beatings,” growth happens on its own.
For too many years, U.S. businesses have seen mergers and acquisitions—or moving corporate headquarters out of the country for more attractive tax havens—as almost the only path to success. When a firm can’t achieve growth organically, it must acquire it. And when it faces a combined federal, state and local income tax rate of nearly 40% in America, it will often merge with a competitor in Ireland. Moving a company’s headquarters to Dublin means paying only 12.5%.
Much has changed this year. Companies from Broadcom to Boeing have announced they’ll move overseas jobs back to the U.S. American companies hold nearly $3 trillion overseas and may soon be able to bring that money home without punitive taxation. Businesses have begun to open up the purse strings, which is why things like commercial airline activity are rising substantially as executives seek new opportunities. Companies are looking to invest in growth.
The promise of tax relief is raising profit expectations for the S&P 500, now expected to rise by double digits in 2018. For pass-through businesses, which employ more than half of private-sector workers, a large tax cut would have a significant effect. On the individual side, much of the tax debate has unfortunately not been about economic growth but about trying to ensure that high-income earners don’t benefit from relief—even though the top 10% of earners paid nearly 71% of federal income taxes in 2016. Stephanie Pomboy of MacroMavens notes that the top 20% spend more than the bottom 60%, and it’s worth remembering that consumer spending is two thirds of the economy.
House and Senate negotiators are now reportedly planning to cut not just the rates for low-and middle-income taxpayers but the top rate as well. Whether a 37% top rate—without deductions—encourages the top earners to spend more remains to be seen, but the prospect of ending the year with no tax reform at all should focus congressional minds.
After reaching Dow 24000, where can markets and the economy go from here? I’m not going to make predictions, but it stands to reason that the economy is better off when federal policy doesn’t discourage people who have a demonstrated ability to work, earn, spend and invest.
Ms. Bartiromo is anchor of “Mornings with Maria” on Fox Business Network and “Sunday Morning Futures” on Fox News Channel.
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