Over the last 10 years, the economy struggled with millions of workers abandoning their job search altogether.
With a huge slowdown of the economy and the housing bubble in 2008-9, many workers in the peak of their earning careers lost their jobs with many dipping into their retirement to pay debts or mortgages using hardship provisions.
Various sectors were crushed including construction, education, technology and more.
After 17 years, the NASDAQ has finally come back to surpass the historic highs of 2000. The “Dot Com Bubble” was the worst crash in recent history where $9 trillion in today’s dollars disappeared compared to the housing bubble which was $7.1 trillion.
Now in 2018, President Donald Trump and the White House have reported that “more than 4 million Americans working from more than 460 companies have received bonuses, raises, 401(k) increases, or other benefits as a result of the president’s tax reform.”
With record-low jobless rates and more people working, we are poised to have greater inflows of direct deposits into 401(k) and other IRA type retirement accounts than in any time in roughly 18 years.
These dollars are generally robotically invested into a basket of securities or funds that an employer retirement plan provides.
The economic analysis herein would indicate that there would be more market liquidity and more institutional buying in the coming quarters. Every payday, millions of employees automatically make “untaxed” contributions to invest in employer retirement plans which may include mutual funds, ETFs and money market securities which all are bullish activities.
These employee contributions into 401(k)s typically boost blue chip and dividend stocks as many investors desire both income and growth. Due to suitability rules and fund holdings, blue chip stocks tend to benefit from 401(k) contributions.
Further, the small-business owner today is allowed to contribute to many types of self-directed plans where the owner or worker may take above the line contributions. These annual allowable amounts are increasing also.
Newsmax Finance has articles on 401(k) tips that include ideas about maximizing your contribution limits, catch up provisions, and how to optimize your matching contributions.
Since Trump’s recent tax-reform bill repealed the Obama penalties of the “Individual Mandate,” there is disposable income for working families to use toward investing also.
The Trump Tax Plan will also create more cash to invest for W-2 workers each payday. Further, the new tax brackets may create record tax refunds this quarter for those who paid in all of 2017.
Moreover, the 20% QBI Qualified Business Income deduction and new higher health care costs deductions may also put more cash on Main Street. We have already seen the corporate tax break “Trump Bump,” but nobody is sure how big the ongoing market stimulus will be from the working families of the USA.
Also, “W-2 and non W-2” workers are incentivized to invest into IRAs, 401(k)s, and self-directed plans before tax time as many taxpayers receive a higher tax refund based on their deduction from funding their retirement plans before April 15.
With more people being employed, the better the probability of index related stock market strength created by mass inflows of cash to retirement related accounts.
As for jobs and the economy, I suppose you could call this the U-6 Stock Market Liquidity Theorem with the added bonus of market boosting lower taxes. Thus, a lower U-6, creates higher inflows of cash invested in securities and potentially lowers the probability of downside in the domestic markets.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations.
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