It???s Just a Cleveland Indians Stock Market

If you???re into baseball, you almost certainly know about the remarkable run of consecutive wins that the Cleveland Indians just mounted. An incredible 22 straight victories; just four games shy of the century-long record of 26 consecutive wins held by the 1916 New York Giants.

Now, I must admit I???m not a huge baseball fan, but you don???t have to be to know what???s going on with this story. The reason why is because big winning streaks — whether they be in the world of sports, or in financial markets — tend to attract a lot of attention.

In fact, big winning streaks tend to bring into focus a diverse set of responses that can tell us a lot about ourselves as people and as investors.

As we all know, the stock market has been on a rocket ship ride higher since that little electoral event we had back on November 8, 2016.

The chart here of the S&P 500 Index makes it perfectly clear that stocks have been on a Cleveland Indians-like winning streak since Donald Trump was elected the 45th president.

And what???s been driving this winning streak?

In one word??? hope.

The hope that the president???s pro-growth campaign agenda would translate into real-world economic and market stimulus. And while much of that hope has been dashed on many fronts (health care reform, infrastructure spending, and even immigration reform) the one remaining, as well as the most important hope, is tax reform.

Specifically, corporate tax reform, i.e., a material cut in the corporate tax rate down to 15% or 20%. That kind of reduction in the corporate tax rate would almost certainly add to the bottom line of corporate results, and if the tax cut is big enough those beefed-up earnings will go a long way toward justifying a market that???s currently trading at about 18X 2018 EPS estimates.

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