Tuesday, October 31, 2017

Markets crawl higher ahead of Fed rate decision

Dow added 17, advancers over advancers 3-2 & NAZ went up 16.  The MLP index was off 1+ to the 268s & the REIT index fell 2 to the 347s.  Junk bond funds were mixed & Treasuries inched higher.  Oil slid back pennies in the 54s & gold lost 7 to 1270.

AMJ (Alerian MLP Index tracking fund)

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Stocks were lower yesterday on the heels of a report that Pres Trump's lower corp tax rate would be phased in over a number of years.  But Senate Judiciary Committee Chairman Sen Chuck Grassley said that Reps have no plans of gradually lowering the corp tax rate.  “On the Senate side we have not talked about phasing that in. We have talked about starting out with the 20% rate,” Grassley said.  Grassley, however, said he would be in favor of phasing it in if Senate Reps approved the budget, which allows $1.5T in tax cuts.  “The only way that I’d be in favor of phasing it in is if there's no way you can stay within the $1.5 trillion figure that we have to as a result of the budget resolution,” he added.  “We have to fit in with that revenue raisers we have by broadening the tax base compared to what we reduced the rates, both individual and corporate.”  In Grassley's opinion, “it sends a bad signal” if the GOP doesn’t go with the 20% tax rate.  “Being that the president started out at 15 [percent], we are down to 20 [percent]. You can’t really go below 23 [percent] under any circumstances for the reason that the other 35 industrialized nations, that’s the average, and some are lower and some are going to go lower like the United Kingdom. So if we are going to be competitive we’ve got to stay at 20 [percent],” he said.

Corporate tax rate at 20% needed; GOP has not discussed phasing in: Grassley

Pfizer (PFE), a Dow stock, Q3 profit more than doubled, while revenue remained largely flat.  The largest US drugmaker posted EPS of 47¢, in Q3, up from 22¢ a year earlier.  Revenue rose to $13.17B from $13.05B.  The stock  lost 27¢.  If you would like to learn more about PFE, click on this link:
Oil prices steadied after a week of gains as the prospect of increasing US exports dampened bullish sentiment that has driven Brent to more than 2-year highs above $60 per barrel.  Iraq's move to increase oil exports from its southern ports by 220K barrels per day (bpd) to 3.45M bpd to make up for supply disruptions from its northern Kirkuk fields also weighed on prices.  Benchmark Brent was down 6¢ at $60.84 a barrel, not far off Jul 2015 highs reached earlier this week, & up around 37% from its 2017 lows hit in Jun.  US light crude was 10 cents lower at $54.05, still near its highest since Feb & also not far off its highest for more than 2 years.  Traders & brokers said investors were adjusting positions after price rises of around 5% in Oct.  US light crude has been trading at a discount of around $6.70 to Brent, making it attractive to refiners.  US crude production has risen almost 13% since mid-2016 to 9.5M bpd.  Bullish sentiment was fuelled by a pledge by OPEC, Russia & other exporters to hold back about 1.8M bpd in oil production to tighten markets.  While the actual cuts aren't quite as high as the target, overall compliance has been strong.  The pact runs to Mar 2018, but Saudi Arabia & Russia have voiced support to extend the agreement.  OPEC is scheduled to meet officially on Nov. 30.
Dow rose almost 1K in the month as it closes out Oct.  Not bad considering it is way overbought & Oct has the reputation for a few very ugly days in the past.  News today probably will not be exciting.  Tomorrow, Janet will give her post meeting announcement which is expected to be bland (as usual).  But the Reps are expected to give details on the proposed tax plan.  Thoughts of lower taxes have been driving the markets forward  & there will be a lot riding on what is proposed.  I'll be off in the PM.  See you tomorrow.

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Monday, October 30, 2017

Markets drop on nervousness about corporate tax cuts

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.

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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.

Wall St extends loss after report of gradual tax cuts

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.

Brent oil holds above $60 on expected output cut extension

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:

GE going from bad to worse, Dow's 2017 stinker

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.

Housing group opens new crack in support for GOP tax plan

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