The world hasn't changed much in the past month, and neither has my outlook, which remains bullish on the economy and moderately bullish on stocks. Trump's tax reform is a big deal, because it is designed to stimulate investment directly, by increasing the after-tax value of corporate profits. More investment means more jobs, more productivity, and higher living standards for all. This type of tax reform needn't explode the deficit, because it will greatly expand the tax base by 1) encouraging more investment, 2) making tax evasion less profitable, 3) attracting overseas investment, 4) increasing the number of jobs, and 5) increasing real wages. In the end, a significant boost to growth would likely dominate concerns over any near-term increase in the federal deficit.
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Despite all the good news about financial market conditions and the economy, the market is still having trouble digesting the new reality of higher interest rates. But as Chart #16 suggests, the market has surmounted at least half of the recent "wall of worry." I would reiterate my earlier views that higher rates are not necessarily a bad thing—especially since they result from a stronger economy—but nevertheless higher rates pose competition for the earnings yield on stocks. Consequently, further gains in equity valuations are more likely to come from higher earnings than from expanding multiples. Total equity returns are likely to be decent going forward, but substantially less than we have seen in recent years, which is why I'm "moderately bullish."
Copiado de The outlook is still healthy.
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