If bondholders fear the flood of money will bring a rise in inflation, they might dump their treasury holdings, pushing interest rates higher. Second, they might fret that a tax cut undoes the need for spending restraint in Congress. Reagan's tax cut was accompanied by big increases in government spending. So, investors trying to pick stocks based on a tax cut should remember that is only part of the equation. Both tax and interest-rate cuts are coming after the economy has slowed.
Many pros think the market has already factored in some weakness.
If the downturn is more persistent, defensive sectors such as utilities and insurance should set the pace. But for the broader market, the real value of a tax cut could be to ensure that the longest bull run in history still has a few innings left. The cost of a tax cut. Tax cuts proposed by president-elect George Bush. A comparison of Bush and Gore's tax plans.