The market will fear one party dominance, no matter which party it is. The problem with dem dominance is obvious: socialism, decreased national security, increased taxation, misery index, ect. The problem with republican dominance, as noted by economists at some of the securities firms, is the probability of a massive tax cut that fuels inflation. Once inflation accelerates and interest rates skyrocket, corporate profits will tailspin. I disagree that the fundamentals are strong enough to carry the day in the stock market.
In order to assuage the markets, republicans would be wise to apply some portion of the surplus to debt reduction at the same time they reduce estate, capital gains and income taxes. They need to reduce gradually, so as not to fan the flame of inflation.
It seems odd that a supply-sider like me is advocating such a compromise position, but it is clear that the stock market is a delicate balancing act right now, subject more to the whims of the Fed than to last quarter's earnings. |
