The long-awaited and much anticipated tax reform bill is almost a reality. Votes still need to be taken in both chambers of Congress, and the president must sign it into law, but these steps appear to be mere formalities at this point. Of course, nothing is done until all the steps are taken, and there is still a sliver of uncertainty regarding the votes of several Republican senators. But at this juncture, the overwhelming odds are that the bill will pass and be sent to the White House before the week is out
The U.S. economy appears set to enter 2018 with good momentum and solid fundamentals. Unemployment recently reached a 17-year low, while consumer confidence is at a 17-year high. Small business optimism also recently attained its highest level since 1986. Often when economic sentiment levels reach such highs, consumer and corporate debts are also rising. That is not necessarily the case this time. The dollar level of debt in many categories may be at an all-time high, but so is income, the level of economic activity, and population. Consumer debts in comparison to consumer income are quite manageable and delinquency rates, though rising a bit, remain well below historical norms.
The S&P 500 added just 0.35 percent last week, but it was enough to establish another record high. The gains came late in the week, first after a deal in Congress to keep the government open for another two weeks, and then following the November jobs report, which showed another healthy gain. And, as has been the case since Thanksgiving, it was the cyclical sectors that led the way, including financials and industrials, although technology stocks did stabilize after falling sharply during the prior week.
Stocks surged last week as the Senate progressed toward a vote to overhaul the tax code that ultimately came in the wee hours of Saturday morning. The bill next moves into conference with the House to reconcile the differences in their respective bills. Republican leadership would like to proceed quickly to send it to the White House before Christmas.