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How President Trump’s Tax Cuts Could Affect the Stock Market

Stock MarketThe 45th President of the United States, Donald J. Trump, famously said he would do “great things” during his first 100 days in office. A major fiscal policy announcement was therefore widely anticipated before the end of this critical initial period for the new administration.

On Wednesday, April 26th, President Trump announced his plan for tax cuts, but uncertainty remains as to how he plans to balance the books. Of course, congressional approval is needed before the plan can be enacted, but with the largest Republican majority in almost 90 years, the President should be able to achieve this signature reform.

Investors and brokers always need to be prepared for major political and economic announcements, since they can often increase market volatility. The prices of key commodities, indices, and currency pairs are often strongly affected by these kinds of events, and traders should be ready to calculate how public opinion can drive market movements.

When trading stocks or ETFs (Exchange-Traded Funds), which track the overall worth of a stock index, it’s important to monitor the strength of the economy as a whole. President Trump’s tax cuts are clearly designed to have a major impact on the U.S. economy by making it easier to start small businesses, traditionally seen as the backbone of the country.

The President’s tax cuts are also designed to boost employment by large corporations. Reducing the corporate tax rate from 35% to 15% is intended to encourage labor force participation, which could then generate incentives for foreign companies to do more business in the United States, benefiting the American economy. The idea is to create a ‘virtuous circle,’ whereby companies make more money because they are paying less in taxes, spurring investors to put more money into the stock market.

President Trump also spoke about lowering dividend and capital gains taxes to 20%. This would make stocks more attractive to traders, who might then invest more money in the markets.

If both congress and the Senate approve the plan, it would be widely seen as a blessing for those with extensive stock portfolios. However, the long-term effect might be to widen the American trade deficit and drive up interest rates, which would then negatively impact the markets.

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