Wednesday, November 8, 2017

Markets fluctuate ahead of the Senate tax plan being released tomorrow

Dow crawled up 6, advancers barely ahead of decliners & NAZ went up 21 led by Apple (AAPL & also in the Dow) stock reaching a new record.  The MLP index lost 4+ to the 269s & has a very ugly chart over the last year (see below) & the REIT index rose 2+ to the 262s (close to its record highs).  Junk bond funds eased back & Treasuries drifted lower.  Oil retreated (more below) & gold added 5 to 1281.

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The House tax-writing committee entered its 3rd day of work today to hammer out the details of the Rep tax cut plan.  Here are the latest developments:
Senate tax writers plan to release their bill tomorrow, according to Senator John Cornyn, the #2 Rep leader   Cornyn said the plan was to walk through the bill with the GOP conference & “It will be out there,” Cornyn said. “There are no secrets around here.”  Treasury Sec Steve Mnuchin signaled the White House is continuing to work with lawmakers on crafting a compromise on the treatment of state & local tax deductions.  “Fundamentally, we agree with the idea of getting the federal government out of the business of subsidizing the states,” Mnuchin said.  “Having said that, several of these states are a very big part of the economy -- New York, New Jersey, Connecticut, California -- and we’re sensitive to the impact on those states. I think that’s something we’ll continue to work with the House and Senate and look for the right solution.”  The House tax bill released last week calls for the repeal of state & local income & sales tax deductions, while preserving property tax deductions up to $10K.  GOP House members in high-tax states, including NY & NJ, have expressed concern that repealing the break entirely would subject some people in their districts to higher taxes.  Senate Reps are considering fully repealing individual federal tax deductions for state & local taxes, including property taxes.  Mnuchin also said he isn't ruling out delaying the start of a corp tax rate cut, but emphasized that the administration's “strong preference” is for the relief to start in 2018.  “The longer we wait, the worse it is for the economy and making companies competitive,” Mnuchin said.  “The president’s strong preference -- he feels very strongly that he wants to start this right away. But having said that, we’ll have to look at the entire Senate package.”  It has been reported that Senate tax writers were considering a 1-year delay in implementing a 20% corp rate.  The House tax legislation unveiled last week calls for an immediate and permanent 20% corp rate.  Before the bill was released, House tax writers were said to have been considering a gradual phase in of the rate to ensure their plan would comply with congressional budget rules.

Senate Plans to Unveil Tax Bill Thursday Morning

The Congressional Budget Office said the tax bill written by House Reps would boost the deficit by about $300B more than lawmakers estimated.  The CBO said the Tax Cut & Jobs Act would increase the deficit by $1.7T over decade.  The Joint Committee on Taxation had said it would cost $1.4T, within the $1.5T size the recently passed budget would require to meet Senate rules.  The difference between the 2 projections boils down to interest costs, the CBO said.  The CBO said that by 2027, debt held by the public under current law would rise to 91.2% of GDP.  By CBO's estimate, additional debt service would boost that to 97.1%.  The Senate is expected to introduce its own tax legislation & the 2 chambers would have to reconcile their differences in a conference, or the House would have to vote on the Senate plan.

CBO says tax bill would increase deficit by $1.7 trillion

Aetna (AET) CEO Mark Bertolini said that the company is considering reviving shorter-term, transitional health care plans, after Pres Trump issued an executive order looking into expanding the shorter-term policies.  “We are actually looking at reenergizing a program we had prior to the [Affordable Care Act] but … more on a focus of short-term, one year kind of plan, or transition plan, versus just the skinny benefit, which leaves a lot of people ... at some moral harm at some point,”  Bertolini said.  “So we have to think of what kind of plan it would look like and offer it as a transitionary plan over a year … as soon as the executive order came out we were on top of it.”  Earlier this month, the pres issued an executive order aimed at expanding access to health care coverage & reducing related costs after Reps' multiple failed efforts to repeal & replace the ObamaCare.  In addition to considering the expansion of Association Health Plans & the use of Health Reimbursement Arrangements, the order directs the administration to look into expanding access to short-term policies.  Under ObamaCare, these short-term limited duration insurance (STLDI) offerings were primarily intended for people between jobs, but Trump's order would allow them to be used by people in counties with scarce coverage or by those who missed open enrollment.  Traditionally, STLDI plans cost about 1/3 of traditional ObamaCare offerings & are not subject to most ObamaCare requirements.  Bertolini added that there are still some regulatory concerns to wade through before the company implements the plans, however he said "we will be prepared when we have the opporunity to act."  AET made the decision earlier this year to exit the ObamaCare marketplace & therefore expressed little concern about the Trump administration's future changes in either the health care or tax reform arenas.  Company execs, however, did indicate that policy uncertainty was causing some near-term discomfort.  “I think our whole view is the best thing to do when you’re going through hell is just to keep going,” Bertolini said.  “Our strategy is not impacted by tax reform, things only get better for us in tax reform … Right now I don’t see any of those taking our feet out from underneath us.”  AET execs did say that when the health care marketplace was reformed, or “right and stable,” it would reconsider re-engagement.  The stock dropped 1.39.
If you would like to learn more about AET, click on this link:

Aetna weighs short-term plans as Trump administration pushes the policies

Oil prices were little changed as rising political tensions in the Middle East offset US gov data showing an increase in domestic crude production & a surprise build in stockpiles.  US crude production rose to 9.6M barrels per day during the latest week, the most in a week on record according to the Energy Information Administration (EIA) data going back to 1983.  The EIA also said crude stocks increased by 2.2M barrels.  That compared with the 2.9M-barrel draw forecast & the 1.6M-barrel decline reported late yesterday by the American Petroleum Institute.  Brent futures were down 4¢ (0.1%) at $63.65 a barrel , while West Texas Intermediate crude was down 16¢ (0.3 %) at $57.04 per barrel.  Before the EIA released the inventory data, Brent & WTI futures were lower on data that showed Chinese crude imports fell to a one-year low.  China's Oct oil imports fell to just 7.3M bpd from a near record-high of about 9M bpd in Sep, according to data from the General Administration of Customs.  That is the lowest level since Oct 2016, though imports were up 7.8% from a year ago.  Traders, however, said they were closely watching escalating tensions in the Middle East, especially between regional rivals Saudi Arabia& Iran.

Oil steadies as Middle East tensions offset rising US output

Traders are watching the goings on in DC, especially regarding tax legislation.  There is plenty of drama & few want to make commitments before learning about the Senate plan for taxes.  However, the stock averages are holding up well, helped by the strength in AAPL (the company with the largest market cap).  Market breadth is still weak & demand for gold continues to be strong.

Dow Jones Industrials

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