04 Jan New tax laws will boost stock markets, Wells Fargo says
Calling the tax overhaul passed late in December “meaningful” for consumers, Wells Fargo Private Bank boosted its projections for economic growth and market gains.
“The tax reform package has a much bigger market impact than we expected and the market is giving credit for today,” Chris Pegg, one of the bank’s senior directors of wealth planning, told clients and reporters on a call Thursday.
The bank now expects to see GDP growth of 2.9% in 2018, stronger than many other economists are projecting.
Darrell Kronk, president of Wells’ WFC, +1.70% Investment Institute, said his confidence in the plan’s power to boost the economy comes from the estimate that 80% of consumers will see a tax cut, which should boost discretionary spending.
Because of that, Kronk believes retail stocks may get a tailwind. But so will industrials, which will benefit from businesses now being able to expense 100% of capital spending.
|S&P 500 index||2800-2900|
|S&P 500 operating earnings per share||$152|
|Russell Midcap Index||2200-2300|
|MSCI Emerging Markets Index||1160-1240|
|Source: Wells Fargo Investment Institute|
The forecast of $152 for operating earnings per share represents a 17.8% increase over the bank’s forecasts for 2017 EPS.
Like many analysts, the Wells team believes the tax changes won’t be as friendly to the bond market. Bigger deficits will increase the need to issue more government debt, just as the Federal Reserve is starting to wind down its balance sheet, and as other central banks may also start to tighten monetary policy.