The stock market’s winning streak extended for another month in November as U.S. stocks posted strong gains. The “risk-on” environment largely played out across asset classes as riskier assets posted solid gains, while risk-averse asset classes such as high-quality bonds slipped.
We have wondered aloud in these pages previously that while valuations are high, conditions could be present for a stock market “melt-up.” November certainly did nothing to quash such an idea. Price action has been soundly positive for most days this year and volatility has remained near historic lows throughout 2017.
Wall Street’s focus largely turned to Washington, D.C. in November as President Trump and Congressional GOP leadership worked to create sweeping and comprehensive tax legislation. In the early morning of December 2nd, the Senate passed their version of the tax bill. The House and Senate bills will now have to be reconciled before placing the legislation on President Trump’s desk. It seems highly likely the committee will come to an agreement.
We have been asked recently whether we think the impact of tax reform was already built into the price of stocks. It’s hard to know for sure, but we suspect the market hasn’t fully priced in the tax reform. Goldman Sachs developed a high tax and low tax basket of stocks last year to watch the impacts of tax reform. So far in 2017, the companies that pay high taxes and stand to benefit the most from the tax cuts have underperformed those that will benefit the least. This metric and others lead us to believe a cut in statutory corporate tax rates from 35% to 20% coupled with the ability for companies to immediately expense capital expenditures should have a favorable impact on the price of stocks in the short-run.
We remain cautious on the expected return of stocks in the coming 5 years but current conditions seem to strongly favor higher highs in the months to come.
I first investigated Bitcoin in fall of 2015 after a conference. The price of Bitcoin at that time was around $225 and has surged past 11,000 as of month-end. Here are my thoughts on Bitcoin:
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“Remember that history always repeats itself. Every great bubble in history has broken. There are no exceptions.”