Tags: ron insana | trump | tax | cuts | profit

CNBC's Ron Insana: Trump Tax Cuts Only Good for Short-Term Profit Pop

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By    |   Friday, 05 January 2018 09:45 AM

Economic guru Ron Insana warns that President Donald Trump’s much-touted tax cuts may be good for a short-term “profit pop,” but the long-term outlook isn’t as vibrant as the White House Claims.

The tax cuts are seen fueling growth in profits and jobs and expanding the overall economy, the CNBC personality said.

“While I am less convinced that, after final revisions, the tax plan will be a drag on growth, given its relatively modest impact on individual incomes, what occurred to me this morning is that there could be a real issue for corporations that analysts have not yet admitted to themselves,” Insana wrote for CNBC.

Insana explains that gains in after-tax profits for corporations don't necessarily mean top-line numbers are increasing.

“It simply means that profit margins will expand, and after-tax profits will be larger,” the CNBC and MSNBC contributor wrote.

Big gains this year may be hard to match in 2019, and that could mean this stock market run-up is reaching a turning point, the author of four books on Wall Street explained.

The Dow Jones industrial average rose above the 25,000 level for the first time on Thursday and other major indexes scaled new records, propelled by strong economic data both in the United States and abroad.

The 30-member blue-chip index crossed five 1,000-point marks in 2017 on the back of President Donald Trump’s pro-growth agenda and solid corporate earnings. It took less than a year for the Dow to add a 5,000-point milestone, which is the fastest since the index was created in May 1896.

"Hence, this early year strength in stocks may be more of a "blow-off top" than a continuation of the trend," Insana wrote.

"We are, at the very least, due for a correction. There are budding signs of speculative excesses in the markets, at home and abroad," Insana wrote, echoing comments he made later on a CNBC TV appearance.

"But my growing concern is that tax reform offers only a one-time lift to stocks and it may all be discounted by the stock market before this month is over," Insana wrote.

"Of course, I could be wrong. But the concern about a one-off upward adjustment to corporate profits merits some serious consideration as investors adjust their portfolios to yet another 'new normal,'" Insana wrote.

To be sure, Wall Street has started 2018 on a strong note. The benchmark S&P index closed above 2,700 for the first time on Wednesday and the Nasdaq settled above 7,000 a day earlier, Reuters explained.

“We saw Apple doing well, and we’re also seeing energy, which was a laggard last year, do well. The integrated names are gaining interest as oil prices are moving higher,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

Also, strong manufacturing and services sector data from the world’s largest economies provided a bullish tone on Thursday, while other data showed U.S. private employers stepped up hiring in December. Friday will bring the key U.S. non-farm payrolls report.

“As long as you have economic growth and earnings moving higher, there’s still a solid underpinning,” Krosby said.

For his part, Trump himself took a celebratory victory lap on Twitter:

(Newsmax wire services contributed to this report).

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CNBC’s Ron Insana: Trump Tax Cuts Only Good for Short-Term Profit Pop
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Friday, 05 January 2018 09:45 AM
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