Thursday, September 28, 2017

Markets drift lower after Trump's tax plan is announced

Dow edged up 12, decliners over advancers 4-3 & NAZ lost 6.  The MLP index gave back 2+ to the 281s & the REIT index fell fractionally to the 347s.  Junk bond funds fluctuated & Treasuries were sold again.  Oil climbed in the 52s & gold dropped another 2 to 1285.

AMJ (Alerian MLP Index tracking fund)

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Stocks slid & bonds continued to sell-off as investors assessed Pres Trump's tax cut proposals & the implications of a Federal Reserve interest rate hike before the end of the year.  The S&P 500 Index was down slightly & small-caps were flat following yesterday's rally over enthusiasm from Trump's tax-cuts.  European shares slipped as struggling miners & retailers offset gains for oil & gas companies after WTI crude jumped to a 5-month high.  Treasury yields reached the highest level in more than 2 months, & German & French debt followed suit.  But higher-earning bond of peripheral countries, such as Portugal & Greece, gained.  The $ took a breather after a surge that had carried it to a 6-week high.  The € was set for its first rise in 4 days as a regional confidence index climbed to a decade-high.   A euro-area economic confidence index climbed more than forecast in Sep, data showed, giving ECB policy makers more positive news to consider as they decide on the future of their bond-buying program.  But the policy outlook for the world's biggest economies won't be the only thing on investor minds: end-of-quarter volatility may be near & major markets including China will shut next week for a holiday.
Stocks Lower, Bond Rout Persists on Trump Tax Plan: Markets Wrap

Treasury Sec Steve Mnuchin said Pres Trump's proposed tax cut plan will reduce the deficit by trillion $s.  “We think there will be $2 trillion of growth so we think this tax plan will cut down the deficit by a trillion dollars—that’s a large number. We’re focused on growth. We think the 3% GDP is a very moderate aspiration and we can do higher than that,” Mnuchin said.  The plan calls for cutting the current corp rate of 35% while reducing the rate on pass-through businesses & opposing a one-time low repatriation tax to 10% or lower.  “This is about tax simplification and making our business tax at 20% and 25% for pass-throughs very, very competitive with the rest of the world,” he said.  Trump’s sweeping tax overhaul plan has received criticism from the left as Dems continue to push the idea that the tax cut plan will only benefit the rich.  “It’s not a tax cut for the rich and, as the president has said, he is focused on income taxes and the wealthy not going down and we’ve been working on that, we’ll continue to work with Congress on it,” Mnuchin said.  The Treasury secretary said the goal is to create jobs & grow the economy which will help pay for the tax cuts.  “We’ve eliminated almost all deductions so for the rich that means that although the tax rate came down, some all their deductions disappear which pays for it,” he added.

Tax cut plan will cut deficit by $1T: Treasury Secretary Mnuchin

The number of Americans filing for unemployment benefits rose more than expected last week, reflecting the lingering effects of Hurricanes Harvey & Irma.  Initial claims for state unemployment benefits increased 12K to a seasonally adjusted 272K, the Labor Dept said.  Harvey & Irma affected claims for Texas, Florida, Georgia, Puerto Rico & the Virgin Islands.  Economists had forecast claims rising to 270K.  The storms have impacted the claims data in recent weeks & are expected to cut into job growth this month.  Still, the labor market remains strong.  Claims have now been below the 300K threshold, which is associated with a robust labor market, for 134 straight weeks.  That is the longest such stretch since 1970, when the labor market was smaller.  The 4-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 9K to 277K, the highest level since Feb 2016.  The number of people still receiving benefits after an initial week of aid fell 45K to 1.93M in the latest week.  Continuing claims have now been below the 2M mark for 24 straight weeks, pointing to diminishing labor market slack.  The 4-week moving average of continuing claims dropped 3K to 1.95M, remaining below the 2M level for the 22nd consecutive week.  The continuing claims data covered the survey period for Sep's employment rate.  The 4-week moving average of continuing claims fell 2K between the Aug & Sep survey weeks, suggesting little change in the unemployment rate.  The jobless rate rose one-tenth of a percentage point to 4.4% in Aug.
Traders are assessing implications for the new tax plan even though many details are lacking.  Its reception is along party lines.  Reps generally like it & Dems are complaining about giving tax breaks to the rich.  But the Reps look they will push hard to sell it to Americans.  The final product, assuming there is one, will be different from this proposal.  Janet's recent comments on tax hikes are also being digested.  As the month & qtr close, prottfolio adjustments will influence market performance.

Dow Jones Industrials

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