Congress took one step closer to tax reform last week when the Senate passed a budget. This was necessary before any tax laws could be changed.
The Trump Administration would like tax reform laws passed this year, but Simply Money Advisors wouldn't be surprised if this doesn't happen until 2018 simply because there are only about two months left in the year. While not enough information is known about the possible changes to the tax law to say what the effects might be on the economy, any corporate tax reform will likely mean that companies pay less tax and thus, have higher profits. History shows that when a company earns more profits, its stock tends to increase.
Even though any higher corporate profits caused by future tax reform may be a few months away, companies are currently reporting strong earnings. We are about 1/5 of the way through this earnings season. So far, the results are promising. About 84% of large companies are reporting earnings better than analysts have expected, and those earnings are growing at a rate of 8.7% compared to a year ago.
The big economic event of this week will be the release of third quarter’s GDP (Gross Domestic Product) growth rate, which is expected to be 2.5%. The GDP is the total value of everything produced. It’s basically the “report card” for how our country did economically from July through September. However, there is a lot of uncertainty around this number because of the economic impact from this year's hurricanes.
There are about two weeks before President Trump's trip to Asia. This is important because he has said he would announce the next Chair of the Federal Reserve (Fed), our nation’s central bank, before that trip.
There are five contenders for the job. The three that would likely be the best received by the markets are Jerome Powell, who’s a current member of the Fed’s Board of Governors, current Fed Chair Janet Yellen, and Gary Cohn, an economic advisor in the Trump Administration and the director of the National Economic Council. The two that could make the markets nervous are Kevin Warsh, a former Fed governor and John Taylor, a Stanford University economist.
Either way, this decision won't have an impact on the Fed's November 1st meeting where no short-term interest rate hike is expected or the December 13th meeting where a hike is expected.
The Simply Money Point
There are many things Wall Street is watching closely, but none of them are concerning. This doesn't mean that stock market uncertainty won't pick up - it very well could. But as long as recession risk remains low, Simply Money Advisors would likely view a downturn in the stock market as a buying opportunity.