Markets slide after Harris proposes higher corporate taxes

Dow was off 124 & sliding lower, decliners over advancers better than 2-1 & NAZ slipped back 56.  The MLP index fell 3+ to the 283s & the REIT index dropped 1+ to the 412s.  Junk bond funds inched higher & Treasuries saw buying which reduced yields.  Oil was pennies lower in the 74s & gold added 6 to 2548 (record territory).

Dow Jones Industrials

Lowe's (LOW) cut its full-year forecast, as the retailer's quarterly sales declined & it projected weak home improvement spending in the 2nd ½ of the year.  The company now projects total sales of $82.7 - $83.2B for the full year, compared with the $84 - $85B that it previously expected & expects comparable sales to fall by 3.5-4%, compared with its prior forecast of a decline of 2-3%.  It anticipates adjusted EPS will be $11.70 - $11.90, compared with the prior outlook of $12 - $12.30.  CEO Marvin Ellison said consumers are waiting for the Federal Reserve to cut interest rates.  He added shoppers also under pressure from the economic backdrop.  “Inflation remains high,” he said.  “And big-ticket purchases are being delayed as customers sit back and wait for interest rates to fall.”  Fed Chair Jerome Powell has signaled a rate cut could come as soon as Sep, but Ellison said it's difficult to predict how soon home improvement activity would gain momentum again after that.  About 90% of LSS customers are homeowners & most have a fixed 30-year mortgage rate of less than 4%.  That explains customers' hesitance to get a new mortgage or take out a loan for a major home project with higher interest rate, he added.  LSS has not seen “a dramatic shift one way or another in overall consumer sentiment,” but is waiting for housing turnover to go up.  In the 3-month period that ended Aug 2, EPS fell to $4.17 compared with $4.56 per share, in the year-ago period.  LOW got a $43M pretax gain from the sale of its Canadian retail business in 2022, which lifted its earnings in the 2nd qtr.  That boosted the EPS by 7¢.  Excluding the gain, EPS was $4.10.  Net sales dropped from $24.96B in the prior year.  It posted a year-over-year sales decline for the 6th straight qtr.  Comparable sales, an industry metric that takes out 1-time factors like store openings & closures, dropped 5.1%, as the company said customers took on fewer discretionary home projects & unfavorable weather hurt sales of outdoor & seasonal items.  Those declines were partially offset by growth in its online business & sales to home professionals, such as contractors & electricians.  For pros, comparable sales rose by mid-single digits and online sales increased by 2.9%.  The stock was off 3.01.

Lowe’s cuts full-year outlook; expects weaker home improvement sales

VP Harris' economic policy roll out continued as her campaign said that if she wins the presidency she would push to raise the corp rate to 28% from its current level of 21%.  Harris campaign spokesperson James Singer said the policy is "a fiscally responsible way to put money back in the pockets of working people and ensure billionaires and big corporations pay their fair share."  The US corp tax rate was 35% when former Pres Trump & congressional Reps enacted the Tax Cuts & Jobs Act (TCJA) in 2017.  The law lowered the corp tax rate to 21% while also reducing personal income taxes for most taxpayers.  Harris' proposal aligns with Pres Biden's budget proposal for fiscal year 2025 that was released earlier this year & had the corp tax rate rising to 28%.  "Raising the corporate income tax rate to 28 percent is the largest driver of the negative effects, reducing long-run GDP by 0.6 percent, the capital stock by 1.1 percent, wages by 0.5 percent, and full-time equivalent jobs by 128,000," the Tax Foundation wrote.  The organization's analysis estimated that raising the corp tax rate to 28% would bring in over $1T in tax revenue over the 2024-2034 period.  The nonpartisan Committee for a Responsible Federal Budget (CRFB) also analyzed the FY2025 Biden-Harris budget proposal, which found that raising the corp income tax rate from 21% to 28% would bring in $1.425T in tax revenue over 2024-2034.  Raising the corp income tax rate to 28% would push that rate above the worldwide average, which stood at an average of 23% on average across 181 jurisdictions as of Dec 2023, according to the Tax Foundation.  When weighted by GDP, it found the average corp tax rate was 25.7%.  Harris' announcement comes after she unveiled part of her economic agenda on Fri that CRFB estimated would cost at least $1.7T over a decade, potentially rising to $2T if certain provisions supporting the housing industry were made permanent.

Harris calls for raising corporate tax rates to 28%

Treasury yields were little changed as investors wait for commentary from the Federal Reserve on inflation, interest rates & the economy.  The yield on the 10-year Treasury was less than 1 basis point higher at 3.875% & the 2-year Treasury yield nudged 1 basis point lower to 4.057%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Traders are gearing up for a Fed-focused week.  There's the release of Federal Reserve Jul meeting minutes tomorrow, followed by the start of the central bank symposium at Jackson Hole, Wyoming, on Thurs.  The week will be rounded off by a highly anticipated speech by Fed Chair Jerome Powell at Jackson Hole.  While analysts don't expect firm guidance on the path ahead for interest rates, they are looking for a sense of Powell's latest thinking on US inflation & the economy.  His remarks come after data showed annualized inflation hit 2.9%, while Jul retail sales & weekly initial jobless claims boosted sentiment last week.  These events come as market participants become increasingly confident that the central bank will soon begin cutting interest rates.  Indeed, Fed funds futures are pricing in a 100% probability that the central bank decreases the borrowing cost at its Sep meeting, according to CME's Fed Watch tool.

Treasury yields hover as investors await Fed updates

Stocks are marking time after notching their longest rally this year, amid optimism that Jerome Powell will signal the Federal Reserve is open to a deeper cut when it starts lowering interest rates.  Meanwhile Harris' proposal to raise corp taxes does not warm the hearts of investors & the stock market is overbought after an 8 day rally.