The bull market is alive and well.
On Monday, the Dow Jones Industrials was up another 284 points to a new all-time high. The S&P 500 was up 20. The Russell 2000 gained 15 to 1,559.
All thanks to the passage of President Trump’s tax reform package.
In the wee hours of Saturday morning, Senate Republicans passed a bill 51-49 in favor of reform. Now, the bill goes to conference, where both the Senate and House need to create a joint bill. It will then be presented to the President for his signature.
In particular, the market is most excited about the potential for a 20% corporate tax rate, which could boost earnings by 8% or so, according to Market Watch.
Those lower taxes will be a big positive for both stocks and the economy
In fact, “with this tax deal, markets could pick up speed into the end of the year. It looks like the ingredients for a year-end rally are there,” said Angelo Meda, head of equities at asset manager Banor SIM in Milan, predicting equity gains of 3 to 4 percent, as quoted by Zero Hedge. “Tax cut hopes have been a significant tailwind this year for U.S. stocks.”
There will be some hurdles to overcome. The two bills do differ in some ways.
- For example, individual provisions would expire in 2025 under the Senate proposal. Under the House, such provisions would be permanent.
- The Senate wants to keep seven tax brackets, but lower them -- 10%, 12%, 22%, 24%, 32%, 35% and 38.5%. The House wants four brackets -- 12%, 25%, 35% and 39.6%.
- The Senate would raise standard deductions from $6,350 to $12,000 for single filers; from $9,350 to $18,000 for heads of household; and from $12,700 to $24,000 for joint filers. The House wants it raised to $12,200 for single filers; $18,300 for heads of household; and $24,400 for joint filers.
- The Senate wants to increase the child tax credit from $1,000 to $2,000. The House would increase it from $1,000 to $1,600.
- The Senate would keep mortgage interest deductions as is. The House would lower the amount of mortgage debt on which interest may be deducted to $500,000 from $1 million.
- The Senate would keep student loan interest deductions as is. The House would eliminate those deductions altogether.
So far, the markets like what they see.
If a deal can be reached, the bill could make its way to the White House by Christmas. As a result, we could see much higher highs in the markets, especially for smaller cap stocks.
We think the tax plan will be very positive for the microcap stocks that we recommend in The Cheap Investor.