The Wells Fargo Investment Institute sees the tax overhaul as a game changer.
Scott Wren, the firm’s senior global equity strategist, says there’s a high probability the stock market could see a 10 percent gain or more next year because it’s single-handedly lengthening the recovery.
“This tax package is definitely a kicker, and it’s going to boost our GDP number up a little bit. It’s going to boost our earnings number, our targets and it’s going to push out the length of this cycle, ” he said this week on CNBC’s “Futures Now.” “What this tax package is going to do is extend this for a couple of more years.”
Wren has been one of the more cautious voices on the street. In September, he predicted a 4 to 8 percent pullback on the program. But it never happened, and the S&P 500 is on track to end the year 20 percent higher.
“We thought we’d see the high for 2017 in the middle part of the year,” said Wren. “We weren’t calling for an end to the cycle. … We were not bearish. We were in the pullback camp.”
Wren now predicts mostly upside ahead and has backed away from his 2019 recession risk forecast.
“Somewhere out there on the horizon is going to be a time to get defensive. But, it’s not now,” said Wren, who believes the economic recovery is “long in the tooth.”
Wren’s official forecast calls for a 2018 year-end S&P 500 target of 2,650 to 2,750. That’s around where the index is currently trading. But he’s tinkering with it — reiterating that the tax package was more aggressive than his initial estimates.
“There’s some big leverage in earnings when, of course, the tax rate is a little lower at 21 percent. When you can expense 100 percent of your capex, that is a big number. That really pushes earnings up higher than what we expected,” Wren said. “There are some adjustments to be made here on our part. We’ll probably do that over the course of the next week or so.”