I have some comments in an article in today’s WSJ: “Stimulus Buoyed Wall Street In 3rd Quarter; Can It Last?”
What surprised me in the article was the number of other strategists who have adopted a somewhat similar perspective. When too many people agree with me, that typically means I’m either wrong or late to the party. But this article is one of the first I’ve read where the focus is on the fading impacts of the Bush economic plan.
Here’s a excerpt:
The idea that the stimulus may already be losing its zing is particularly troublesome to anyone critical of Mr. Bush’s tax cuts, which are helping push the nation toward a huge budget deficit.
Barry Ritholtz, chief market strategist at Maxim Group, a New York brokerage firm, thinks the Bush administration may have missed its target in emphasizing the stock market, rather than the broader economy. “That’s like treating the symptoms but ignoring the underlying disease,” he says.
Capital-gains tax rates are now on level with the dividend tax rate, and investors obviously pledged their hearts and wallets to more speculative companies this year, namely the kinds that don’t usually pay dividends (that’s right, tech stocks).
“If we want to encourage people to move away from speculative stocks and to more conservative, no-hanky-panky dividend-paying stocks, why put them on par with capital-gains taxes?” Mr. Ritholtz wonders.
He would’ve liked to see the government raise the bar on the amount of stock-market losses investors are allowed to carry forward each year, and raise the cap on IRA contributions. He also thinks a tax cut more heavily slanted toward the middle class — or, the “spending” class — would also have done more for the economy in the long run. Higher-income taxpayers tend to be savers and investors.
Meanwhile, the after-effects of income-tax cuts and refinancings may have already passed the point where they’re doing much to help the economy, especially as consumer confidence weakens amid a troublesome jobs market.
I never want to come across as too negative. Historically, the market goes up two thirds of the time. (That’s why there are always more perma-bulls than perma-bears — they can survive being wrong longer). Lest anyone accuse me of being partisan or overly negative, here’s my upbeat perspective:
Overall, market watchers think that if payrolls continue to expand, lifting consumer confidence, putting more cash into consumers’ pockets and increasing demand for goods, stocks will continue to rally. But if Friday’s payrolls data were just a blip, that could mean trouble.
“I think the rally could last six to 18 months — I don’t think we’re in danger of rolling over and dying,” says Maxim’s Mr. Ritholtz. “But you hope this wasn’t just a one-time goosing and that the economy catches. By the end of the first quarter, if we don’t see job creation starting, not only is the rally kaput, the economic recovery is in real danger.”
TAKING STOCK By Erin Schulte
Saturday, October 4, 2003
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