Tax reform snag could pose big market risk
Thursday marks an interesting juxtaposition for investors: the 30th anniversary of Black Monday, the worst one-day stock market crash on record, yet the major U.S. stock indices are hovering near record highs.
This has created a time for reflection, with investors wondering if lofty equity valuations and a volatile political climate are laying the groundwork for another market meltdown. Assessing the risks on the anniversary of Black Monday, Wells Fargo Investment Institute analysts noted that they see flatter growth for S&P 500 companies going forward, but they do not believe the growth cycle is coming to an end. They cautioned that investors should prepare for an uptick in volatility, with the recent, low volatility for the S&P 500 “not normal.”
There are concerns over the likelihood of Trump’s tax reduction and other growth packages passing Congress, as the markets are being supported in this cycle by the hope that these initiatives will go through. Wells Fargo added that we are in the “last third” of the growth cycle, and some risks increase at the end of the cycle.
The Senate and the House of Representatives must agree on a fiscal year 2018 budget resolution before a tax bill can be sent to Trump to be signed by the end of the year. While this is going on, investors shouldn’t be complacent, and Wells Fargo recommends investors rebalance their portfolios in light of the aggressive year-to-date equities rally. Some of the big gainers trading on the S&P 500 this year include Boeing (NYSE:BA), PayPal (NASDAQ:PYPL) and Activision Blizzard (NADSAQ:ATVI).