It may seem strange given the rhetoric out of Washington these days, but many investors actually pulled their money from the stock market following the announcement that the tax bill had passed Congress and was on its way to be signed by the President. This is a bill that has been hailed as something that would be not just positive for individuals, but definitely something encouraging for the market as a whole. Perhaps not though.
CNBC reports that about $14.5 billion dollars were pulled from ETFs and other types of investments just after the tax measure passed. If this leaves you scratching your head, you are not the only one. That being said, there are some explanations floating out there which may help to explain why this move occurred in the first place.
Some say that investors may have already priced in some of the tax cuts into the prices that were being baked into equities. That is a possibility. If true, then investors may now be pulling their funds as they believe that the market has already priced in these tax cuts and may now be trading at a level that is really too high for what the true value of the market should be.
Redemptions from the bond and equity markets were the largest in total since around the time that the Brexit vote occurred. The shocking vote in that referendum had many investors spooked, and this was what lead so many of them to pull their funds in that situation. Now, it seems like many are also concerned with what this tax bill may really mean for the country and for companies down the line. There is little consensus as to what exactly will happen as a result.
Since the markets tend to like certainty, this also could explain why many investors have taken their money and run. They don’t want to be caught up in something that lessens their chances of having a nice return on investment at the end of the day. Perhaps they are just waiting until things settle down a little bit before they get involved again.
While this move is interesting to note, there are some who say that it is really not that big of a deal. They claim that in reality, this only helps to set things up for an even better market move in the coming year. If true, we could be on track to see even more record highs.