Stock Smarts: Tax Cut Rally!
The stock market had an immediate run-up on President Bush’s plan to cut taxes, highlighted by a provision to make stock dividends tax-free to investors.
But there is a long way to go before the proposal becomes law. Is the move higher justified no matter what kind of tax cut we eventually get?
Charles Payne of Wall Street Strategies says he thinks the market move was justified. He points to an old saying on Wall Street: “It’s great when the Fed’s on your side.” And says Wall Street knows that President Bush is on its side. He says the stimulus package is focused on the stock market and its relationship to the wealth effect and that’s good for stocks.
Hilary Kramer of Montgomery Asset Management says the Fed helped keep the real estate market strong with interest rate cuts, and with this new stimulus package she says we should see the stock market go up. It will put more money in consumers’ hands.
Jonas Max Ferris of Maxfunds.com does not believe the President’s plan is the right one for the economy or the market. He points to last week’s negative jobs report and says this economy needs a stimulus package not “investor welfare.” He says IRA and 401(k) investors are not going to benefit from any dividend tax cut, and this package is not going to generate job growth and has no effect at the corporate level at all. He says the market may go up only because money is coming out of other asset classes and going into a certain group of stocks and that’s not going to create jobs.
Wayne Rogers of Wayne Rogers & Co. says it’s a complex plan. We don’t know what this tax-free dividend will do to the Municipal Bond market or how it will impact 401(k) plans which may still suffer a double tax even if the plan goes through. Add the “deemed dividend” aspect of this plan to the mix and he says you have too many unknowns to be convinced at this point that this plan is the right one for the market.
Jonathan Hoenig of Capitalistpig Asset Management agrees the plan is complicated but he says he applauds President Bush for once again raising the question: “Are we entitled to the money that we earn and invest!” Jonathan says he thinks President Bush started an important discussion in this country about the nature of taxation. But his concern for U.S. stocks is still a weakening dollar.
Tax Cut Winners!
What are the stocks that could win big if the President’s tax cut becomes law? Members of the panel offered up some potential tax cut winners.
Hilary's Tax Cut Winner: Clear Channel (CCU)
52-week high: $54.90
52-week low: $20.00
Friday's close (1-10-03): $42.30
Charles likes the pick. He says it’s a play on the economy improving. Jonathan says this stock could suffer from a weak U.S. dollar. Wayne likes CCU whether the President’s tax plan goes through or not.
Charles' Tax Cut Winner: Oracle (ORCL) dialogue
52-week high: $17.50
52-week low: $7.25
Friday's close (1-10-03): $13.07
Once again, Wayne says he doesn’t care whether the President’s tax plan goes through or not, he loves Oracle and he owns plenty of it. Jonathan says he views Oracle more as a trading stock right now though he wouldn’t bet against it.
Wayne's Tax Cut Winner: Lehman Brothers 5.67 percent Series D Preferred
52-week high: $49.75
52-week low: $39.34
Friday's close (1-10-03): $49.50