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Why stocks could rally this summer like we've never seen before: trader

By Alan Valdes, director of floor operations at Silverbear

Most eyes are focused on Cleveland this week, but let’s not take all our attention off Wall Street. It’s shaping up to be a pretty big week for earnings. We have a slew of potential market movers—GE, Goldman Sachs, JNJ, Halliburton and AXP—reporting, just to name a few.

Later in the week, we get a host of government data, existing home sales, jobless claims, oil inventories and housing starts. So far, both earnings and government data have been surprisingly better than expected, enough so that we started off the week at another all-time high (DOW 18,533) despite not much volume (75,500,000).

But keep in mind it was a Monday, and many traders were still enjoying an extra day at the beach. Traders are now talking about a melt up to Dow 20,000. This very well may be the year we see that psychological magical number. Conditions are setting themselves up for a continued bull market. No matter how hard they try, the Feds, it seems, are going to be stuck in a low-interest rate environment, which ends up being great for stocks.

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Watch that dry powder

Employment numbers, on average, have gained 281,000 per month. Not great—but nevertheless, trending in the right direction. Salaries in the US have been going up ever so slowly (okay, painfully slow). Keep an eye on that cash or (as they used to say, “dry powder “) on the sidelines. By some accounts, there are trillions of dollars on the sidelines looking to find a home other than the 10-year at 1.4%.

But the big push to 20,000 may come from overseas where negative rates are causing an exodus to our shores. This hunt for yields could indeed push us to a Dow of 20,000. Will it be a straight line up? Doubtful! There will always be bumps in the road. However, with Brexit in the rear-view mirror, continued low-interest rates, no real inflation, earnings looking okay and money looking for a home—the real opportunity exists for a summer rally like we have never seen before.

Back to Cleveland

We are going to hear numerous speeches. We will hear how great Donald Trump is this week and how great Hillary Clinton is next week in Philadelphia. For those of us on Wall Street, it’s all about who will be best for both Wall Street and Main Street businesses.

Trump’s tax plan is intriguing. He is planning on cutting the individual and corporate tax rate to 15%—taking us from one of the highest rates in the world to one of the lowest. This, if implemented, would be a huge boost to the economy in general and to Wall Street in particular.

First of all, 15% would make us competitive with the rest of the world. Our biggest trading partner in the EU is at 25%, and China comes in at around 25% as well. It would have the potential of raising our weak GDP to 4%, create about 12 million jobs and add about $10-12 trillion to the economy which would offset the dollars lost from the reduced tax revenue. Unfortunately, what looks good in July can change by the time it arrives in Washington in January.

Either way, it looks like anything but the summer doldrums this year. Fasten those seat belts!

Next week I will highlight the Clinton tax plan.