Tax reform might not be as close as you think


Tax reform will once again take center stage this week, but don't expect anything meaningful for quite some time. The Senate's version – just released last Thursday – is much different from the House's version.

The biggest difference is the timing of the corporate tax rate cut to 20% from 35%. The Senate is looking to implement it in 2019, while the House is eying 2018. Nevertheless, the House is moving forward, and a vote is expected this Thursday, November 16th.

Once the House and Senate pass their different versions, the two bills will need to be reconciled. And that could take some time.

The economic calendar is relatively light this week, but there are a few key releases that should confirm our view at Simply Money Advisors that the U.S. economy is healthy. Retail sales are expected to show solid growth for October, indicating that spending from consumers like you will push the economy higher in the final three months of this year. We expect the economy to grow around 2.5% in the final quarter of 2017.

With the economy having grown 3% in the third quarter of 2017, it's not surprising that so far nearly 77% of large companies have reported earnings that were better than analysts had expected for the quarter. The growth rate for earnings is a solid 7.2% (on average) for the nearly 90% of companies that have reported.

This matters to you because, over the long run, growing earnings and growing stock prices often go hand in hand. This is good news if you hold stocks in your investment mix.

Of course, there may be some uncertainty in the stock market in the short term. After all, there has not even been a 3% drop all year. This lack of volatility is rare.

However, many signs point to rising stock prices, such as that when large stocks had a strong first 10 months of the year, the final two months typically resulted in higher prices. This is just one reason we would view any move lower as a buying opportunity and not the end of the bull market.

The Simply Money Point

At Simply Money Advisors, we believe stock prices will move higher in the months ahead because of the favorable earnings. The growing economy means corporations will probably report higher sales and higher earnings.

Further, a corporate tax cut means these same corporations would see a boost in their earnings because they will pay less tax. This is good for you as an investor.

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