Tax reform the rocket fuel for US stocks
U.S. stocks were higher again on Wednesday, boosted by the latest progress in passing tax reform legislation while a strong reading on U.S. third quarter GDP added to the upside.
According to Wells Fargo (NYSE:WFC), stocks will see more upside than the bank previously forecast for 2018, thanks to tax reform.
This week, Wells Fargo adjusted its 2018 economic forecasts and equity-market targets to account for tax reform. While the bank sees only fractionally higher GDP and inflation in 2018, they significantly increased their equity-market targets.
They are looking for the S&P 500 to fall in the range of 2650-2750 points, 8% higher than its prior forecast. They now expect the Russell 2000 will fall in the range of 1500-1600 points, up 10.7% from its previous estimate.
The bank noted that Congress has moved at an impressive speed as it seeks to cross the legislative finish line before year-end. They believe that federal tax reform will be enacted by the spring of 2018, and possibly by year-end 2017. Wells Fargo said they believe the tax provisions with the most direct financial-market impact in 2018 will be the corporate tax changes and the size of the overall tax cuts.
The Senate Budget Committee passed the GOP tax reform bill on Tuesday. The bill still has to pass the full Senate.
The Dow, S&P 500, Russell 2000 hit all-time highs on Wednesday.
The Commerce Department released its revised third quarter GDP estimate, to 3.3% on a seasonally and inflation-adjusted annual rate, up from its initial forecast for 3.0%. The revised reading showed that the U.S. economy had the strongest quarterly growth in three years, according to Reuters.