Dow lost 85 closing near the lows, decliners over advancers more than 3-2 & NAZ fell 2. The MLP index gained a fraction to 270 & the REIT index was fractionally higher in the 349s. Junk bond funds were lower & Treasuries rose as stocks were sold. Oil finished up pennies in the 54s & gold gained 5 to 1277.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.6511775943277167)
Stocks extended losses after a
report that the House of Representatives was discussing "a gradual
phase-in" for Pres Trump's corp tax cut plans. The schedule would have the rate reach 20% in 2022. Under the plan, the rate may be reduced from its
current 35% rate by 3 percentage points a year starting in
2018. Investors appeared to shrug off charges against Paul Manafort, a
former campaign manager of Pres Trump, & one of his
affiliates - the first in connection with a probe into possible Russian
meddling in the 2016 presidential election. With Q3 earnings season more than ½-way
thru, nearly 74% of the S&P 500 companies that have
reported earnings, have topped profit expectations, compared with
72% overall the past 4 qtrs. Investors also awaited the announcement on the nomination of the new Federal Reserve chief, expected on Thurs. Trump is likely to pick Federal Reserve Governor Jerome Powell as
the next chair of the central bank.
Brent oil slipped but held above $60 a barrel, near its
highest since mid-2015, on expectations OPEC-led production cuts would
be extended beyond Mar although rising Iraqi exports put a lid on
prices. Brent crude futures were down a penny to $60.43 per barrel, & yet the benchmark was still close to its
highest level since Jul 2015. West Texas Intermediate (WTI) crude futures were 2 pennies higher at $53.92 a barrel. The OPEC plus Russia & 9 other producers agreed to cut 1.8M barrels per day (bpd)
from Jan 2016 to clear a supply glut. The pact, already renewed once, now runs to Mar 2018, but Saudi
Arabia & Russia, who are leading the effort, have voiced support to
for a further extension. Iraq has increased exports from its southern oilfields to 3.45M bpd to make up for a shortfall from the northern Kirkuk fields,
Basra Oil Company said. Also keeping a lid on prices, US production
is up almost 13% since mid-2016, resulting in a steep WTI
discount of $6.50 per barrel against Brent, increasing
the attractiveness of US crude exports. OPEC Secretary General Mohammad Barkindo said Russian-Saudi
backing for an extension cleared the fog before the group's meeting in
Vienna on Nov 30. Saudi Crown Prince Mohammad bin Salman repeated the kingdom's support for extending the deal at the weekend. Today's rally has pushed the Brent's Dec 2017 contract to a premium of $2.60 a barrel over the Dec 2018 contract. This structure, known as backwardation, was at the top of OPEC's
"to do" list, along with targeting record-high global inventories. Such a
premium gives holders of physical oil an incentive to sell their stored
barrels for a higher price.
General Electric (GE) is the worst performing Dow stock so far this
year, with shares collapsing almost 36% since Jan 3. While the its share value has been pummeled, the Dow has appreciated by over
18% YTD to skyrocketing investor confidence (stemming
from DC's pro-growth agenda) & positive corp earnings. GE released disappointing quarterly results on Oct 20 & shares
have declined almost 13% since, despite management's imminent unveiling
of a turnaround plan. Execs will host an investor day on Nov 13, where it is
expected CEO John Flannery will detail the company's capital allocation
plan, including the future of its div. The company did mention when
it released Q3 earnings that it would target asset sales
worth $20B over the next 1-2 years. Following GE's Q3
earnings, Flannery said the board had given him marching orders to look
at the company with “no constraints,” & that every segment would be
rigorously reviewed, including the 18 board members. The stock dropped 38¢.
If you would like to learn more about GE, click on this link:
club.ino.com/trend/analysis/stock/GE?a_aid=CD3289&a_bid=6ae5b6f7
Another deep crack opened in the support for Trump & the Reps' tax-cutting plan, as a powerful lobbying
group in the housing industry withdrew its blessing for the GOP's top
legislative priority just as its details are set to be revealed. The move by the National Association of Home Builders adds to
breakaway threats against the legislation from House Reps from
high-tax states & with strong conservative views, & from defenders
of 401(k) retirement savings plans. The building opposition to the sweeping tax overhaul plan comes
as House Reps work behind closed doors on proposed legislation
for the plan that they'll unveil on Wed. House Speaker Paul Ryan reacted to the homebuilders' action by
accusing special interests in DC of trying to derail the tax
plan by sowing "confusion and chaos." "Confusion and chaos is what protects the special interests" & the
status quo, Ryan said. He added that he's been warning Rep lawmakers that opposition to the plan will only intensify as details are released. Still, he didn't rule out the possibility that the homebuilders'
view may still be considered as the complex legislation is drafted. "I think the homebuilders had a very interesting proposal. It's a
fairly new proposal. I think our members should take a look at all
these options as we go through tax reform," Ryan added. "Maybe our
members will take a liking to it." Noting that the GOP plan calls for doubling the standard
deduction used by most average Americans to $12K for individuals &
$24K for families, & increasing the per-child tax credit, Ryan said, "Those things are huge
middle-class tax cuts." The nearly $6T tax plan also seeks to slash the corp
tax rate from 36% to 20% & repeal inheritance taxes on
multimillion-dollar estates, a huge break for the wealthy. The number of
tax brackets would shrink from 7 to 3 or 4, with respective
tax rates of 12%, 25%, 35% & to be determined. It remains to be seen whether the middle class will see a significant tax break as details are still being finalized. Reps are driven to enact the first major tax overhaul
in 30 years to show a legislative accomplishment to voters in next
year's elections & keep their majority in Congress. As with that failed legislative effort, though, Rep
leaders are writing the critical tax legislation in secret with
Dems excluded & no hearings planned before formal
drafting begins. The homebuilders' group objects to the removal from the tax plan's latest version of a homeownership tax credit. "Lawmakers missed a golden opportunity to give the American
people a tax reform package that would boost middle-class families and
promote greater housing opportunity for Americans across the economic
spectrum," NAHB Chairman Granger MacDonald said. The move marks a flip-flop-flip for the group,
which originally opposed the Rep tax plan then split from other
housing industry groups to support it. NAHB officials said the proposed
doubling of the standard deduction meant the plan had already eroded the
value of the mortgage interest deduction, a darling of the industry, because people wouldn't be likely to itemize deductions given the bigger
standard break. As a result, the group was open to other options, especially the
homeownership tax credit that was previously in the plan. It would have
allowed a 12% credit to be claimed against interest paid on up to
$500K in mortgage debt ½ up to $5500 in property taxes paid. At the same time, Rep lawmakers from high-tax states have
rebelled against the plan's proposed elimination of the federal
deduction for state & local taxes. They mustered a show of force on
Thurs that nearly sank the plan in a vote on the budget that cleared
the way for the tax overhaul. A battle over contributions to 401(k) retirement accounts has
broken open. The financial industry & some Rep lawmakers insist
that the plan not change the tax benefits of the popular savings
vehicles, as has been floated by GOP leaders. Trump has given
conflicting signals, promising the retirement plans' structure won't be
touched, but then saying changes may be on the table.
Those guys in DC are getting a lot of attention by stock traders who are nervous. Until the initial tax plan is released on Wed, nervousness will grow. Popular stock averages are near record highs. But the stock market remains vastly overbought & nervous minds will keep the pressure on stocks.
Dow Jones Industrials
