The stock market is not the economy. The economy is not the stock market.
These statements may be self-evident, but too often the financial industrial complex conflates the two. While the stock market and the American economy are interwoven, they are not clones, especially as it relates to the tax legislation moving on Capitol Hill.
The tax bill is likely to go before the House and Senate in the week ahead as the two chambers seeks to deliver a final version to President Donald Trump before Congress begins its holiday break.
It appears that both the highest individual tax rate and the corporate tax rate will be cut. There will be other changes to what and how much people and companies can deduct from their incomes.
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Don’t let anyone tell you with certainty how these changes will affect the economy.
How will rich Americans use their tax savings? Will a cap on mortgage interest deduction hold down home values, the biggest asset for most Americans? What would the tax bill do for worker productivity? How will it influence production and consumption behavior?
It will take years to answer those economic questions. As outgoing Federal Reserve Chair Janet Yellen said at her last news conference on Wednesday, “The magnitude and timing of the macroeconomic effects of any tax package remain uncertain.”
But the growing likelihood of this tax package has helped pump up the stock market in recent weeks. JP Morgan Chase CEO Jamie Dimon said last week how he thinks corporate America will use its tax savings. “Some will raise wages. Some will buy companies. Some may do dividends and buybacks. Don’t act like that is a bad thing. That is their money.”
With the stock market’s rally to new highs, investors are confident that money is a good thing for them.
Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.