As most of the press argues about the merits of tax reform, and its expected passage this week, one thing largely missed by the mainstream coverage is that, politics aside, this news is good for the stock markets.
Early this morning the FTSE rallied on the tax reform news. “It might be a bit later, but there were signs of a tax-bill inspired Santa rally this morning,” said Connor Campbell, financial analyst at Spreadex, who was widely quoted in press reports covering European markets.
“With Senate and House Republicans coming to an agreement over the weekend, and the prospect of the tax bill being passed later this week – giving Trump his first major victory since taking office in January – the markets were in party mode this Monday,” Campbell added.
When markets go into party mode with less than 10 trading days left on the year, it is commonly referred to as a Santa Rally.
And while the corporate tax cuts will lead to Fannie Mae and Freddie Mac needing some temporary monetary support from the Treasury, there isn’t much downside investors can see to the tax reform. Both the Dow and SP are up in this morning’s trading.
This bodes particularly well for European investors as “UK stocks are better value than their US counterparts and, despite the spectre of Brexit horse trading through 2018, there are no obvious banana skins between here and New Year,” writes Lee Wild in Interactive Investor.
However, despite the expected rally, investors are wondering what may lie ahead for the New Year.
Serge Berger, InvestorPlace Chief Technical Analyst, wrote this morning that one potential downside is after the tax reform passes, “what else is there to be looking forward to?”