Monday, July 31, 2017

Dow closes at a record on hopes for tax reform

Dow jumped up 60, advancers  slightly ahead of advancers & NAZ lost 26.  The MLP index was fractionally higher to the 298s & the REIT index slid back pennies to the 353s.  Junk bond funds were mixed & Treasuries fluctuated.  Oil climbed over 50 on optimism about production cuts & gold was essentially even but higher in Jul (more below).

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A rebound in contract signings for the purchase of previously owned US homes shows housing demand is stabilizing after a 3-month downturn, National Association of Realtors figures released showed.  Index rose 1.5% (est. 1% advance) after 0.7% drop.  The gauge climbed 0.7% from Jun 2016 on unadjusted basis. 3 of 4 regions showed month-over-month increase.  The increase puts the gauge in line with its average since the start of 2016 & shows growth in the residential real estate market is being sustained while contributing little to the economy.  Housing remains driven by trade-up purchasers who have taken advantage of low mortgage rates & are taking in stride higher asking prices.  Limited choices of cheaper properties, however, are hindering entry-level buyers.  Jun saw a decline in sales to investors & those paying cash.  Less competition from investors may help alleviate the tight supply issue, which is good news for first-time buyers.  “Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria,” Lawrence Yun, NAR chief economist, said.  “Low supply is an ongoing issue holding back activity. Housing inventory declined last month and is a staggering 7.1 percent lower than a year ago.”  13% of sales went to investors, smallest share this year.  All-cash transactions accounted for 18% of , the smallest share since 2009. Yun forecasts 5.56M existing homes will be sold this year, up 2.6% from 2016.

As the White House turns its attention toward tax reform, National Economic Director Gary Cohn said that lawmakers will have a piece of legislation written in 3-4 weeks.  During a listening session with executives from the real estate industry, Cohn confirmed that the GOP, including both the administration & Congress, is in total agreement on the major, overarching tax reform issues.  That includes the border-adjustment tax, which Cohn, Treasury Sec Steve Mnuchin & Rep Congressional leaders announced last week would not be included in the tax reform bill.  Last week, officials outlined key proposals that will be contained in the legislation including lowering the business tax rate, reducing “tax rates as much as possible,” increasing capital expensing & making sure the legislation is permanent.  Today, Cohn also recommitted to the 2017 timeline for tax reform.  "The president is 100% committed to getting tax reform done this year," he said.  Cohn added Reps were intent on showing the public, particularly where tax reform is concerned, “how unified [they] are on the issues.”

Gary Cohn: GOP in total agreement on major tax reform issues

Gold futures ended marginally lower but saw a monthly gain.  Gold for Dec delivery, the most active contract, fell $1.90 (0.1%) to close at 1273 an ounce.  For the month, gold saw a 2.5% rise

Gold Ends Marginally Lower, But Posts Monthly Gain

The auto industry is expected to turn in an underwhelming month of sales in Jul, likely paving the way for big discounts later this summer.  Auto sales have slowed down this year after a record-setting 2016, when automakers sold 17.55M new vehicles in the US.   Although interest rates & gasoline prices remain low, sales figures have dropped after much of the market's pent-up demand was satisfied during 7 straight years of growth.  Automakers have also suffered from slumping demand for passenger cars.  Sales of trucks & SUVs continued to grow in H1.  Kelley Blue Book & Edmunds are forecasting a 6% decline in Jul sales, compared to the same month in 2016.  Sales are also on pace to post a sub-17M seasonally adjusted annual rate for a 5th month in a row.  That would mark the longest streak since Feb 2015.  With 2018 models beginning to arrive in dealerships, car shoppers should see better incentives as automakers look to move outgoing models off the lot.  “Kelley Blue Book expects to see sales start to jump back up again in August and September thanks to model-year closeouts and the Labor Day holiday,” said Kelley Blue Book.  Edmunds, which predicts a 3.1% decline in sales versus Jun, expects every major automaker to report weaker Jul sales.  The car-shopping website believes General Motors (GM) will post the largest decline, 10.8%.  Edmunds also says Ford (F) & Fiat Chrysler (FCAU) likely sold 5% & 7% fewer vehicles, respectively.

Slow July auto sales hint at late summer discounts

While the drama in DC is providing excitement for gossip lovers, the administration is moving forward on its agenda (which gets lost with headlines on hearsay).  While healthcare may be resurrected, tax reform will get the most attention.  Dow has had a good month, rising a solid 540, nearing 22K, while NAZ has been stumbling in the last couple of weeks but still close to record levels.

Dow Jones Industrials

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