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Market Commentary > October 2nd, 2017 - Market Commentary

October 2nd, 2017 - Market Commentary

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Last week wrapped up the month and the quarter with most attention now looking forward to the kickoff of third quarter earnings season and whether the home stretch of 2017 will deliver any notable policy initiatives. One significant U.S. policy objective stepped forward last week with the administration releasing its tax reform package while healthcare reform looks to be off the table for now. Interest rates moved higher on continued encouraging economic releases and news of FOMC chair candidate Kevin Warsh, a notable hawk, getting serious consideration.

Markets applauded highlights of Trump's tax plan including cutting corporate tax rate to 20% (from 35%), consolidating seven personal tax rates to three (12%/25%/35%), and simplifying/eliminating several deductions and credits. All else equal, a 15% cut to corporate taxes would boost EPS by 23.1%, a huge lift to the bottom line. While the hope is to complete a plan by year end, early 2018 is more likely.

Fedspeak has grown more hawkish over the past several weeks despite continued soft inflation data. The narratives feed into what is now an 82% probability of a December hike based on CME futures market trading.

Strategas notes that today's 2.3% level of wage growth is a far cry from the 4% level which has historically been indicative of inflationary pressures and inverted yield curves associated with recessions.

There was a good amount of activity on the global political front last week. German elections resulted in Merkel retaining power but the AFD (anti-immigration, anti-Euro) showing indicates that Euro populism is not dead. North Korea unrest led Japan's PM Abe to dissolve parliament and call for snap elections to solidify his position and he also announced a $18b domestic spending package. Looking forward, China's Politburo reshuffling occurs in October and Italy's elections are set to take place in 2018.

Easy money has provided an extended stay for many companies that should otherwise go away, making it difficult for active managers to be paid for picking winners and avoiding losers. About one-third of companies in the Russell 2000 have failed to earn a profit in the past 12 months, a level typically only found in the depth of a good recession, yet their stocks prices have persisted.

The final estimate of 2Q GDP registered an encouraging 3.1%, a nice rebound from the 1.2% level in Q1. Core PCE, an inflation measure closely watched by the Fed, fell to 1.3% year over year in August. Regional manufacturing reports from Richmond, Chicago, Dallas, and KC all exceeded expectations. New and pending home sales both missed expectations last week. Despite the hurricane impact on jobless claims, they remained under 300,000 for the 134th consecutive week.

Because economic forecasts had been ratcheted down following a disappointing first half 2017, most reports are beating expectations. Citi Economic Surprise Indices in the U.S., Europe, and Japan are all confirming the upward economic surprise trajectory while emerging market indicators are trending sideways.
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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by radical promoting and their editorial staff based on the original articles written by jeff cutter in the falmouth enterprise. This article has been rewritten for Todd Schneiderand the readers of Schneider Family Finance. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

 

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