Policy optimism drives recent stock gains

Randall Forsyth of Barron’s probes key factors in the Dow’s recent surge.

Spurring the overall market’s advance was optimism on two policy fronts, fiscal and monetary. On the former, the Senate on Thursday passed a budget resolution that seemed to pave the way for debate on tax legislation to begin more quickly than expected. The budget opens the way for $1.5 trillion in tax reductions over the next decade with a simple 51-vote majority in the Senate, and may not require a conference committee with the House of Representatives. Bottom line from the legislative arcana: There’s a chance of a bill getting passed, if not by year end, then by early 2018.

There also seems to be some greater flexibility in discussions over the tax package. House Speaker Paul Ryan was talking about adding a fourth tax bracket for high earners. That might provide revenues to pay for maintaining the state and local tax deduction, a highly contentious issue that could cost Republican votes in high-tax states. …

… It’s also wrong to expect either a major tax overhaul or nothing, according to Strategas Research Partners’ Washington research team, led by Daniel Clifton. “[T]he key to this budget is it still allows Congress to move a significant tax cut if the larger reform fails,” they wrote in a client note on Friday. “This increases the probability of some tax legislation passing in [the first quarter of] 2018.…We wouldn’t be surprised if we see a draft of tax-reform legislation next week.”

For the stock market, the proposed corporate tax cut is the centerpiece of any legislation. …

… FURTHER BUOYING THE BULLS was speculation that Federal Reserve Gov. Jerome Powell was the leading candidate to be the next chairman of the central bank. But later on Friday, President Donald Trump told Fox Business News that Stanford University economist John Taylor also was in the running.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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