What Tax Cut?

U.S Equities have softened for four of the last five trading days. Since Donald Trump was elected president in November of last year, U.S. equity indexes such as the Dow Jones, S&P 500, and the NASDAQ composite have traded to new all-time record highs on 58 separate occasions.

This dramatic rise was, in fact, a combination of actual solid economic data and optimism stemming from the belief that President Trump would implement a major tax cut.

As far as the current economic state of our country, solid and realistic data suggests that the former recession that plagued the United States is a thing of the past, with brighter days ahead.

As for the optimism surrounding a major tax cut which was one of the cornerstones of President Trumps campaign promises, well that is another matter completely. Currently, the Republicans are attempting to pass legislation to effectively implement a tax cut.

However, as we have spoken about on numerous occasions, such a task not only requires legislation that can effectively accomplish that goal, but more importantly monetary considerations to create a budget that is deficit neutral, while cutting taxes at the same time.

The latest attempt is to do away with the Obamacare mandate requiring citizens have healthcare. The thought process behind this move is that by removing the requirement, roughly 13 million U.S. citizens will drop their healthcare thereby saving $338 billion in subsidies over ten years

In other words, the Republicans wish to reduce the budget by removing subsidies on healthcare from families that would otherwise not be able to afford health care for their family.

It seems highly unlikely that such a mandate will pass through both the Republican and Democrat Senate and Congress. As such, the tax cut proposed will either increase the U.S. budget and deficit tremendously or have significant difficulty being implemented at all.

If, in fact, the proposed tax cut fizzles, one can expect much of the recent gains in U.S. equities based upon the optimism of a tax cut quickly fade away, which could easily be the beginnings of a real U.S. equities market correction.

Wishing you as always, good trading,