President Donald Trump’s honeymoon period with investors is ending as the tax cuts and regulatory changes he promised during the election get pushed aside by worries over immigration and national security.
Larry Kudlow, a Newsmax Insider and economist who advised the Trump campaign, said the administration needs to get back to work on reforming the tax code or stocks and the economy may suffer.
“If you don't get the business tax cuts until late in the year, I think it's going to damage the stock market,” he said in an interview on CNBC. “It's going to damage the economy because people are going to postpone activities.”
Stocks are showing signs of stalling out. After rising about 7.5 percent to record highs after the election, the S&P 500 this week fell back to levels first reached six weeks ago.
Trump's order last week to temporarily ban refugees and immigrants from seven Middle Eastern countries was criticized by foreign leaders and politicians from the Democratic and Republican parties, while his supporters approve of the measure, according to Time magazine. In response to former President Barack Obama's criticism, The Wall Street Journal's editorial page said, "Syrian refugees became a global crisis in large part because Mr. Obama did almost nothing for five years as President to stop the civil war, much less help refugees."
If the history of new presidential administrations is any guide, February will see a bigger sell-off.
The S&P 500 stock index falls by 3.8 percent on average in February after a new president is inaugurated, Michael Hartnett, head strategist at Bank of America Merrill Lynch, said this month in a report to clients.
“The bullish sweet spot of Presidential Cycle Year 1 is March to July, which has an average gain of 7.86 percent (average March to August rally of 11.15 percent for a first-term President),” according to the bank’s analysis.
Kudlow and economist Stephen Moore last week urged Trump to immediately enact sweeping tax cuts as he promised on the campaign trail to bolster job creation.
“Congressional Republicans say they plan to wait to take up tax cuts until later in the year, after they’ve dealt with ObamaCare, passed a 2017 budget resolution, confirmed President Trump’s first Supreme Court nominee and tackled other initiatives,” they wrote in the Wall Street Journal.
“This would be a big mistake. When Mr. Trump addresses Congress in a joint session Feb. 28, he should urge lawmakers to pass a jobs bill, including a tax cut, during his first 100 days in office," wrote Moore and Kudlow.
"The centerpiece of the plan should be a reduction in the tax rates on corporations and, importantly, on America’s 26 million small businesses. Broader reforms, including tax-rate cuts for families, should come in a second round of legislation later this year,” they wrote.
“The tax plan Mr. Trump campaigned on—which the two of us helped write last year—is indispensable to economic revival," they contend.
Time is Trump’s enemy, they warned.
"Any delay in passing the tax bill risks putting a damper on investment decisions and slowing the path to real economic recovery. The longer the delay, the lower the odds of getting a tax cut passed at all this year," they claim.
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