By Gary Gordon of
NEW YORK (
and other Wall Street "insiders" believe that U.S. stocks will appreciate significantly in 2011, in large part due to the proposed two-year tax policy extension. Theoretically, I am inclined to agree.
Let's first examine this from a "supply-side" vantage point. With more money in the pockets of small businesses, the much-maligned "wealthy" are more capable of creating jobs by investing and spending their property (money). In fact, job growth is the primary area of the U.S. economic picture that has kept the markets on edge. It follows that 2011 should see more vibrant job growth than it did in 2010 because... at least for the initial year of the extension... small businesses may add human resources at a slightly faster clip than they did in 2010.
On the "demand side," the 13-month extension of unemployment benefits to "99-weekers" is a mixed bag of pros and cons. One plus is that giving people money still stimulates spending and adds to GDP growth. (Let's face it... few unemployed families can afford to hoard cash.) What it may not do, however, is serve to help retrain workers, let alone motivate people to find work that pays less than they may have grown accustomed to. And while many see ongoing unemployment payments as moral, it may increase dependency of the unemployed as well as maintain higher-than-desired unemployment figures.
Keep in mind, the bipartisan proposal isn't the only positive tailwind for 2011. The parties in power are split. This is the third year of a first-term presidential cycle. And there's no better historical year for equity investing than a third year, first-term scenario where a Democrat runs the White House while the Republicans control Congress.
In theory, then, 2011 should be favorable for stock investors. In the longer term, however, the task of reining in the deficit becomes that much more intractable. The interest on U.S. debt literally dwarfs the size of every other government expense, from defense to education to healthcare. When and how the markets will focus on the
bankrupt status of states like California and Illnois
... that's anyone's guess.