Let’s say it is safe to say that the level of animosity in Washington will lead to divided government for the foreseeable future, despite the Republicans holding a sliver of power within Congress.
That premise can only be good for equities as investors see gridlock as a means to remain with the status quo. Markets hate the unknown, but today we have the “known unknowns” through partisan inaction.
As I wrote earlier the White House tax cuts will probably not come up until late this year or early next year since the House wants these to come due closer to the mid-year elections in 2018.
I believe the infrastructure spending may come a little sooner since that cash will take on the additional steps of creating jobs and hiring people before it becomes salary and then works its way into the economy through consumer spending.
If this economy is ever going to see even 3% GDP growth in the next few years, then the velocity of the money supply will need to be accelerated.
Both tax cuts and middle-class earning level hiring — as oppose to Fed propping up banks through bond purchases ie: Quantitative Easing — should give a larger boost to growth since it bypasses the gatekeepers in Washington.
The Fed through its closed-loop QE system — where bank “profits” through the Fed’s bond buying was not released or trickled down to the general population through additional lending or by chance interest on savings — restrained velocity for fear of inflation if the $3 trillion or so it created hit Main Street.
So none of those measures will come out of Washington anytime soon, but in the meanwhile stocks will trade in a range from here for the next few months as bickering and finger-pointing and of course Tweets fly on who is wrong or corrupt.