FINANCE

Steve Moore: To infinity and beyond -- The Dow hits 20,000

Index approaches historic 20,000 milestone

 

The Dow hit 20,000 on January 25. What has been called "the Trump Bounce" should now be redefined as "the Trump Moon Bounce." Stocks are up by more than 2,000 points since the Trump election -- a 10 percent gain in mere weeks.

Not bad. Taking into account the gains in other indexes, the nation's wealth has exploded by at least $2 trillion since the election.  

Talk about a honeymoon.  Anyone who owns stock either in a retirement account or as individual trader should be singing "Ode to Joy."  

So few saw it coming. Economists like Mark Zandi predicted that a Trump presidency would crush the stock market and the real economy. Paul Krugman was asked the morning after th election and after the market had dropped by more than 500 points when stocks would stage a comeback. "Never," he said. And he has a Nobel prize. Maybe he should give it back.  

Is this the start of something really big or an episode of irrational exuberance? 

Perhaps both. "The markets may be running a little bit ahead of themselves," advises Larry Kudlow, a Reagan administration economist. But this could be th start of something really big - especially if Trump actually enacts the pro-business agenda he's promised.  

Let's go back to the early 1980s when Ronald Reagan came into office. ‎ The Dow actually crashed in his first 18 months in office when the 1970s double digit inflation was being sweat out of the system. Then when the Reagan tax cuts took full effect in the second half of 1982 the Dow exploded from its low of 800 to 3,000 by the end of his presidency and then 10,000 10 years later. This was the greatest surge in wealth in history.   

You don't want to sit out these bull markets when they arrive. ‎ 

So why is it time to be bullish? First, the tax cut willl add value to corporate profits. Dan Clifton of Strategis, an investment consulting firm, notes that just the roll back of the ObamaCare tax hike - i.e. lowering capital gains and dividend taxes to 20 percent from 23.8 percent means a nice boost in stock prices. "Look what happened to the rise in stocks after the 1997 and 2003 capital gains tax cuts," he notes.   

Then cutting corporate taxes in half from 35 percent means more after-tax profits to pay out in dividends or in capital gains.  

Deregulation and the end of many of the ObamaCare costs will also save companies tens of billions of extraneous costs. Add to that the supersonic boom that can be expected in fossil fuel development and manufacturing from a pro-drilling policy and you get sectors that could get there mo jo back in a hurry.

I'm not saying there won't be headwinds ahead. There will be. Trade wars could inhibit growth. The rise in interest rates that are coming will snuff out some of the rise in stock values as bonds become more attractive. But so far the rise in interest rates is due to the big increase in the DEMAND for investment capital. Businesses want to spend and invest again. Hooray.

It will be a bumpy ride for sure. But with the Dow now having crashed through the 20,000 barrier, the big question for long term investors is: in eight years will we be at Dow 30,000?

‎ If Trump and the 115th Congress start taking competitiveness seriously and start treating businesses as assets, not villains, and if we accelerate to a 4 percent growth rate in GDP for the next several years then the value of America Inc. will surely continue to rise.

Don't bet against it. We can make not only make America great again, but Americans rich again too.  

Stephen "Steve" Moore is a Fox News contributor. An economic consultant with Freedom Works, Moore previously wrote on the economy and public policy for The Wall Street Journal.

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