It’s Beginning to Look a Lot like…a Very Rosy 2017 by Happy Lane Franklin

Less regulation in the energy, health care, and financial sectors, decreased taxation, and increased innovation by companies are a recipe for a stronger economy and continued growth in the stock market. The surprising election of Donald Trump indicates the desire of many  to move away from the current political establishment. Now that Donald Trump is President Elect Trump, investors have high expectations for “deregulation, corporate tax reform and fiscal stimulus.” [Bob Doll, “Equities Continue to Rally as Optimism Grows”, Weekly Investment Commentary, Barron’s, 11/28/16.]

Investors are hopeful that such reforms will translate into a more robust economy with stronger wage growth, a higher GDP, more and better jobs, etc. The stock market is already pricing in growth for an extended period of time and “is pricing in a near certainty of faster GDP growth next year…the current trend is for GDP growth of about 2.8%, [which] could go to 4.5% pretty quickly.” [Avi Salzman, “Trump Rally Continues, Sending Dow Up 1.5%, Barron’s, 11/28/16].

President Elect Trump’s tax repatriation plan to bring their cash reserves back to the United States could give the US economy a nice boost. “Trump’s pre-election economic plans included a special one-off tax holiday allowing U.S. firms to repatriate funds held overseas with only a 10% payment, versus the current 35% rate.” [Reuters, How Donald Trump’s Tax Repatriation Plan Will Create Jobs”, 11/24/16.] “Goldman Sachs is projecting that S&P 500 companies will bring back $200 billion of the $1 trillion in cash they hold outside the United States and use $150 billion for buybacks.” [How Donald Trump’s Tax Repatriation Plan Will Create Jobs,” Reuters, 11/24/16] Some of the funds that return to the United States will go towards share buybacks, job creation, higher wages, and new innovations.

Repatriation could also increase foreign acquisition of companies. We should welcome more foreign investment and acquisition. “The jobs with foreign manufacturers "tend to be more stable; they tend to pay higher wages," averaging some $60,000 a year. It's not a magic bullet, but at 5.3 million jobs, it's significant.” [Micheline Maynard, “How Foreign Companies are Remaking the American Dream”, 11/28/09. ]

Lowering corporate taxes can help businesses get back to what they do best…creating new products and services. Currently the US has the highest corporate tax rate. Lowering our corporate tax rate could help increase foreign investment and our long- term domestic growth.

In my 15-year career as a financial advisor, this is one of the most optimistic times I’ve experienced. The definition of the Trump rally has evolved from his political rally to the market’s post election rally. Few people are expecting the post election Trump rally to be short lived. Even the “short sellers don’t look like they’re going to fight the new upward trend…Short sellers haven’t been willing to double down on their bearish bets-all evidence that there is little appetite to short the current Trump rally.” [Avi Salzman, “Trump Rally Continues, Sending Dow Up 1.5%”, Barron’s, 11/28/16].

Over the past year and a half we have been inundated with so much negative news about the economy and our sluggish GDP. It is a breath of fresh air to have more positive news now. “In the past few weeks alone: GDP has beat expectations, hourly earnings has increased, the major indices reached all-time highs, new unemployment claims has hit a 43-year low, and housing starts have increased 25.5%.” [Kevin Simpson, “Dow Reaches 19,000, Stocks are in Record Territory,” Monday Morning Observations, 11/28/16.]

Indeed, there has been so much uncertainty with the economy and the stock market over the past year and a half that companies started hoarding their cash. We are now watching those cash reserves get deployed. “Companies are [currently] using just 75% of their [cash], still below the long term average of 80%. Nonfinancial companies are sitting on $1.6 trillion of cash-roughly 12% of assets, versus a long term average of 7%.” [Kopin Tan, “A Wild Shopping Spree,” Barron’s 11/28/16.]

Consumers have also been sitting on a lot of cash. Consumer spending is up dramatically.“Retail stocks have been among the biggest beneficiaries of the election fueled rally. Department stores are up 19%, and general merchandise outlets, 17%. The National Retail Federation is projecting a 3.6% rise in retail sales, up from 3.2% last year.” [Vito Racanelli, “The Trump Rally Has Legs,” Barron’s 11/28/16. This year is shaping up to be an incredible record year for retail spending.

Fortunately, consumers are doing better, too. Craig Johnson, President and CEO of Consumer Growth Partners is “forecasting that retail sales in the November-December shopping period should hit a record $632 billion. That’s because household balance sheets and real personal income are in better shape than in prior years.” [Robin Goldwyn Blumenthal, “Jolly Holiday Shopping”, Barron’s, 11/28/16]

Just imagine what incredible things could happen with stronger companies and consumers than we have ever seen before. The year 2000 ushered in the dot com era. What inventions are on the horizon next that will catapult our country and economy to the next level? This could be the start of a new era, something special and different.