Larry Kudlow, the economist and former adviser to President Ronald Reagan, said he’s bullish on stocks because profits are rising, inflation is low and consumer confidence is high.
“I’m very bullish on stocks. A 5 percent to 10 percent correction would make me more bullish,” Kudlow said on CNBC.
The Dow Jones Industrial Average posted the first weekly loss in the past three weeks as investors fretted over increased political tensions between the U.S. and North Korea. President Donald Trump on Tuesday warned of “fire and fury like the world has never seen” in response to North Korea’s expansion of its nuclear weapon efforts. The U.S. intelligence community believes North Korea has developed mini nuclear warheads that can be fitted into missiles capable of reaching the U.S., The Washington Post reported.
Kudlow said he’s optimistic about stocks because of healthy economic indicators.
“Profits are rising. I don’t care what the rate of increase necessarily is, they’re just rising,” he said. “Low inflation is a tax cut for consumers and businesses and everything. We’re getting lower than expected inflation. That’s a huge tax cut on the whole economy and it’s going to help a lot as we go forward.”
The consumer price index, a measure of inflation published today by the Labor Department, rose 0.1 percent in July from a month earlier, missing Wall Street estimates for 0.2 percent. Cars and hotels showed drops in prices, which is worrisome for those industries and the jobs they support. While too much inflation erodes the spending power of consumers and is considered bad for the economy, an inflation rate that is too low is interpreted as a sign of weak demand for goods and services.
Low inflation may prevent the Federal Reserve from raising interest rates one more time this year, as the central bank has indicated it would.
The Fed targets 2 percent inflation based on a separate measure of prices published by the Commerce Department. New York Fed President William Dudley said Thursday that “it’s going to take some time” for inflation to rise to the central bank’s target even as he offered a generally positive outlook for the U.S. economy, job market and price pressures, Bloomberg News reported.
“Consumer confidence is the highest in 16 years,” Kudlow said, adding that lawmakers in Washington could shake confidence if they’re unable to reach agreement on tax cuts sought by President Trump.
Kudlow is the radio 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.
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