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Market strategist Ed Yardeni generated headlines this week by calling the current stock market “a Seinfeld Market.”
“When Seinfeld aired on television, millions of Americans viewed the show that was mostly about nothing,” wrote Yardeni, the president of Yardeni Research, in a client note. As for the show we call the U.S. stock market, “investors are watching for something to happen. When nothing happens, especially nothing bad, investors are bemused and show their appreciation by throwing more money at the bull.”
Yardeni has come up with a cute throwaway line. But of course, stock market moves are never about nothing. There is always something going on to explain why stocks continue to hit fresh highs, even in the wake of news that North Korean missiles are getting dangerously close to the land masses of other countries.
In the past week, much of that good news is coming from Washington. For months before, relations between the White House and Capitol Hill had broken down to the point where the president was openly criticizing Mitch McConnell, the Senate leader of his own party. Many were worried whether tax reform, an issue of utmost concern to investors, would be a casualty of this rancor.
But last week, President Donald Trump struck a deal with Democratic congressional leaders to increase the debt limit and finance the government until mid-December. As the New York Times        put it, Trump reached across the aisle “to resolve a major dispute for the first time since taking office.”
Then two days ago, news broke from Democratic lawmakers that Trump was interested in backing a compromise immigration-reform bill that would give the roughly 800,000 children of illegal immigrants in the U.S. a path toward citizenship. Trump has long maintained that he wants to help these children stay in the country since they came here “through no fault of their own.”
Many of Trump’s hardline supporters howled in protest, including alt-right website Breitbart, which wrote that the president was caving on the issue. But the news portrayed the president as a man willing to find common ground on a politically divisive issue.
As a general point, markets are made up mostly of pragmatists who much prefer a compromising president eager to get things done, not a populist bogeyman who doesn’t want to play ball with leaders of either party.
This is particularly true when it comes to a matter like tax reform. Investors no doubt want to see the parties working together for passage of a bill that knocks down the tax rate for both corporations and individuals.
And as Greg Valliere, the Washington-based chief global strategist with Horizon Investments wrote earlier this week, Trump is even willing to compromise on the tax rate that the wealthy pay.
Dan Clifton, a policy analyst with Strategas Partners, wrote Thursday that his institutional investor clients are starting “to believe” that tax reform will become law early next year.
“We wrote repeatedly over the summer how we would go days without speaking with a client who believed tax reform could happen,” Clifton added. “This week has been a sea change in terms of sentiment.”
And that new era of dealmaking in D.C. is helping to explain why stocks keep hitting new highs.