This is going to get complicated, so bear with me, it'll be worth it. If there is a cut in capital-gains taxes, the stock market could rally tremendously. Just remember what happened in 1997, when the top capital-gains tax rate was cut from 28 percent to 20 percent. If you don't remember that, go look at a chart of any major stock index. You'll be very impressed, I assure you.
More liquidity is required, simply because there's a larger economy requiring it.
If the Fed doesn't expand the supply of money to match the larger demand for money in the enlarged economy, the inevitable result is deflation. In the long run, that deflation will end up causing difficulty for the stock market, too - but in the short run, stocks will skyrocket, and gold will tank. Even though there were no cap-gains cuts in the recently passed tax bill, there are important clues that such a cut could be just around the corner. But when an amendment featuring a cap-gains cut from 20 percent to 15 percent was proposed last week by Sen. Judd Gregg, it failed by a margin of only 52 to 47. Eight Democrats voted for the cut, including some liberals such as Charles Schumer and Joseph Lieberman.