Veteran financial guru Larry Kudlow, who served as the Donald Trump campaign's senior economic adviser, is very optimistic that the stock market can continue its record bull run, but warns that there will be some rough patches ahead.
Kudlow told CNBC Trump has the potential to be “a very dynamic leader” by reviving economic growth with his tax-cut strategy, which in turn will restore Americans’ optimism.
Kudlow also is a leading candidate to chair the White House Council of Economic Advisers, The Wall Street Journal reported, citing people familiar with the transition.The appointment would put an establishment Republican who served in the Reagan administration in charge of shaping economic analysis in the Trump White House.
“I’m an optimist on stocks but there are going to be corrections,”said Kudlow, a Newsmax Finance Insider, radio talk-show host and CNBC senior contributor.
“There are going to be corrections. I don't want to be Pollyannic. There are going to be tough corrections,” said Kudlow — host of "The Larry Kudlow Show" and author of "JFK and the Reagan Revolution: A Secret History of American Prosperity," written with Brian Domitrovic and published by Portfolio.
The S&P 500 stock index has surged over 8 percent since the Nov. 8 election, due in large part to sectors that are expected to benefit from an inflationary policy, Reuters reported. The S&P financial sector has led the charge, with a gain of more than 17 percent.
A correction is a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation.
Big gains since last month's election mean stocks generally are more expensive relative to their earnings, a key gauge investors use to measure whether the market is overpriced, the Associated Press explained.
The S&P 500 is trading at about 19 times its earnings per share over the last 12 months, according to FactSet. That compares with its average price-earnings ratio of 15.6 over the last 15 years and is an indication that stocks are, if not expensive, no longer cheap. And that, in turn, implies lower future returns than the big gains investors have enjoyed since the Great Recession's end.
However, Kudlow believes the economy has an excellent chance to flourish now that Trump will take over the Oval Office from Obama.
“I want the American economy to grow because I think growth solves a lot of problems,” said Kudlow, who was a key architect of Trump’s tax platform and an early supporter of Trump.
“It doesn’t solve every problem. But growth ameliorates jobs and wages. It helps to deal with poverty and helps with the deficit. It helps with the debt,” said Kudlow, who worked as Reagan’s budget deputy between 1981 and 1985.
“And most of all, economic growth makes Americans optimistic. I miss that optimism. I believe it can return. I believe Mr. Trump can be a very dynamic leader,”said Kudlow, who under President Ronald Reagan was the associate director for economics and planning, Office of Management and Budget, Executive Office of the President, where he was engaged in the development of the administration’s economic and budget policy.
‘Lowering marginal tax rates on businesses large and small, as Mr. Trump intends to do with the Republican Congress, along with personal tax cuts will increase the economy," he said.
"It did under JFK, it did under Reagan, it did under Clinton. I think it will do it again. I think in four or five years over the next stretch you could run the economy at 4%, 5% growth coming off this low bases of 2 percent growth” under eight years of President Barack Obama.
The incoming Trump administration would have to work efficiently and quickly to put Trump’s strategy into action. He said any delay in implementing the tax cut could also “delay the economy,” Kudlow said.
“It could make 2017 a slower economy than would otherwise be the case. I would simply urge to move quickly on both the healthcare front and the tax reform front because I don't want to lose ground in 2017.”
(Newsmax wire services contributed to this report).
Larry Kudlow is a senior contributor at CNBC. His new book is “JFK and the Reagan Revolution: A Secret History of American Prosperity,” written with Brian Domitrovic.
To find out more about Larry Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com
© 2023 Newsmax Finance. All rights reserved.