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For the sake of our stock market & super funds: Why Donald's tax cuts need to happen

Before we heard the news that Donald Trump’s ‘beloved’ Republicans in the Senate were going to possibly delay the proposed tax cuts, which sent US stocks down, I was set to explain why our stock market beat the 6000 level on the S&P/ASX 200 index this week and then powered higher.

Needed a win

One of the reasons was always going to be that there are US tax cuts coming sooner rather than later because the unpopular Donald Trump needs a big win before the mid-term elections in October next year.

Dumb and dumber

The tax cuts are the Republicans best way to improve Donald’s and their ratings in the polls, so this delay possibility is a disaster and the Dow gave up 166 points pretty quickly on the news.

Start talking, Donald

For the sake of our stock market, our super funds and my listed SWTZ fund, which has gone up about 5.6% in recent weeks, I hope Donald can talk his buddies around to sticking to his plan to get the tax cuts passed before Thanksgiving on November 30.,

Also read: How I’d invest $3,000 today

The knives are out

If he can’t win this one our stock market’s march up could come under pressure. Right now we’re being helped by the idea that tax cuts will make the US economy grow faster and encourage other countries to follow suit. This would help world economic growth at a time when the important global economies are growing in sync for the first time in a decade.

This has helped commodity prices go higher, which has helped our miners and our overall stock market.

Staying right on track

And also assisting is a better outlook for the Oz economy, which the Reserve Bank alluded to on Cup Day. The big bank thinks there’s a ‘rekindling’ of good economic growth ahead in 2018 and I reckon the stock market’s reaction recently, which often reflects what smart investors think will happen in six months’ time, is an endorsement of the RBA’s view.

Also read: Here are the future ‘market darlings’ of the ASX200

Sitting pretty

This week Craig James showed what has happened to our economy since the previous RBA meeting and it paints a pretty rosy picture. Let me share it with you:

  • Consumer prices rose by 0.6% in the September quarter and annual inflation fell from 1.9% to 1.8%

  • Underlying inflation is holding around 1.85%.

  • Employment rose by 19,800 in September; the jobless rate fell to a 4½-year low of 5.5%.

  • Home price growth slowed; national home prices were flat in October.

  • The Aussie dollar eased from US78 cents to US76.5 cents.

  • Business conditions remained near 9½-year highs.

  • New vehicle sales in October were the highest for any October month.

  • The trade surplus was at a record high of $19 billion for the year to September.

  • US unemployment fell to a 16-year low of 4.1% but average earnings were flat in October.

  • The Chinese economy grew at a 6.8% in the year to September.

  • Consumer confidence is holding near long-term averages.

  • Retail trade was flat in September; retail prices fell 0.4% in the September quarter.

  • Commercial building approvals were at record highs in the year to September.

  • Global oil prices rose to 2-year highs.

And there’s more…

I could add other pluses, such as building approvals in trend terms, up for the eighth straight month, economist are tipping better wage rises in 2018 and business profitability at a 9½-year high! I could go on but I think I’ve laid it on thick enough.

Politics for dummies

As you can see there are plenty of reasons for stock market optimism but I hope it’s not KO’d by the dummies in the US Senate!

Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.

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