Thursday, November 2, 2017

Mixed markets while waiting for more details on tax bill

Dow inched up 2, decliners slightly ahead of advancers & NAZ lost 6.  The MLP index fell 3+ to 270.  & the REIT index rose 1+ to the 352s.  Junk bond funds drifted lower & Treasuries were bid higher.  Oil was even in the 54s & gold gained 5 to 1283.

AMJ (Alerian MLP Index tracking fund)

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Stocks fell with the $, while Treasuries advanced as investors reacted to details of the Rep plan to cut taxes.  The £ slumped & gilts surged after the Bank of England indicated its first rate hike in a decade might be the last for a while.  The S&P 500 turned lower as Reps presented the tax plan, with homebuilders tumbling on news of changes to how mortgage interest will be treated.  Markets earlier showed little reaction to news the pres plans to nominate Jerome Powell to lead the Fed.  The BOE decision roiled UK assets, sending the £ lower for a 2nd day versus the $.  US crude held above $54 a barrel & industrial metals pared some of yesterday's gains.  Trump will nominate Powell to the top job at the central bank later today.  Powell is seen by investors as a continuity candidate & has generally backed current chair Janet Yellen's cautious approach to withdrawing stimulus.  The progress toward American tax reform is also on most investors’ radars, alongside corp earnings & tomorrow's US jobs report.  There have been conflicting reports about when & how the US tax rate on companies would be lowered.  House Rep leaders plan to unveil a bill today that would cut the corp tax rate to 20, though it may not stay there.

U.S. Stocks Are Mixed Before Tax Plan; Pound Drops: 

Markets Wrap

The House Ways & Means Committee released the major talking points of its long-awaited tax plan, called the Tax Cuts & Jobs Act, which adds in a 4th tax bracket on high-income earners & leaves retirement plans largely untouched.  The GOP predicts that if its bill is enacted, the average middle-income family of four would receive a tax cut worth $1182.  The legislation will be up for amendments before it’s voted on in both chambers of Congress.  The GOP wants to add in a 4th tax bracket, which had been floated as a possibility throughout the past couple of months, acting as a surtax on the highest earners.  The tax brackets will be set at 12%, 25%, 35% & 39.6%.  The highest rate is in line with the current top tier tax rate, but kicks in at an income level of $1M.  Currently the top rate applies to those with incomes in excess of $480K.  For married couples, the 25% rate starts at an income level of $90K, while the 35% rate applies at the $260K level.  For individuals the 25% rate starts at $45K, the 35% rate at $200K & the top rate at $500K.  While initially the Trump administration called for a full repeal of the deduction for state & local taxes (SALT), the finalized bill indicates Reps settled for a modification instead.  The GOP plans to allow state & local property tax deductions up to $10K.  There current documents indicate that all other state & local property deductions will be eliminated.  Despite discussions to reduce the “catch up” contribution for those over the age of 50 from $6K to $2400, the tax plan released today did not significantly change the retirement savings plans used by more than 50M Americans.  The pres pledged via twitter on Oct 23 to keep the “popular middle class tax break” intact in its current form.  While Pres Trump initially called for a complete repeal of the estate tax, also known as the death tax, the details of the finalized version of its plan are a bit softer.  The GOP wants to double the exemption on inherited assets in the near-term & completely eliminate it after 6 years.  As expected, Reps stuck with their aim of slashing the corp tax rate by 15 percentage points to 20% & they want to make it permanent.  It remains to be determined whether the reduction to the corp tax rate will be gradually phased in over the a few years or whether it will be an immediate, one-time cut.  The GOP's plan also calls for a reduction in the “pass-through” rate on business income to 25%.

Trump’s tax plan: The major changes

The number of Americans filing for unemployment benefits fell to a near 44-year low last week, supporting expectations of a sharp rebound in job growth in Oct after employment was depressed by hurricane-related disruptions in Sep.  Initial claims for state unemployment benefits decreased 5K to a seasonally adjusted 229K for the latest week, the Labor Dept said.  That was not too far from 223K, a 44-year low touched in mid-Oct.  Data for the prior week was revised to show 1K more applications received than previously reported.  The forecast called for claims rising to 235K.

US jobless claims fall to near 44-1/2-year low

Traders are waiting for more details on the tax bill & stocks are wavering.  The new leader for the Fed was well advertised & is not expected to bring significant changes.  The popular indices are near record levels but nervousness is not going away soon with so much depending on the tax bill which is in flux.  Negative investors for stocks continue to buy gold.

Dow Jones Industrials

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