November 13th – Weekly Update

  • The Republican tax proposal that seemed a certainty a couple of weeks ago took a marked turn towards uncertainty disrupting high yield bonds and especially “Trump trade” smallcap stocks. Corporate earnings continued to climb the wall of worry that supported large cap stocks, in particular. Commodities as measured by the S&P GSCI index although flat kept recent strong gains as did Brent Crude Oil at $63 indicative of stronger global growth in the big three China, Eurozone and the U.S. The 10-year U.S. Treasury yield closed at approximately 2.37%.
  • With over 91% of S&P 500 companies reporting third-quarter results, 74% have beaten earnings expectations while 66% have beaten sales expectations. According to FactSet, the third-quarter blended earnings growth is 6.1%, up from 5.9% last week. Michael Kors, Planet Fitness and Weight Watchers impressed this week; Snap, Time-Warner and Fossil were among the disappointments.
  • Taxes and the difficulty among Republicans to reach a consensus were widely covered during the period. The WSJ pointed out that House Republicans are particularly at odds over plans to eliminate deductions for state and local taxes.
  • Senate Republicans are conflicted on whether to trade off significantly higher economic growth for significantly bigger budget deficits. Other press reports carried on discussion around the backlash facing eligibility limits for the new 25% rate on pass-through income and a new 20% tax that multinationals could face on payments they make to offshore affiliates (Bloomberg).
  • CNBC added that the Senate tax plan is not expected to include the controversial 20% excise tax on imports by multinationals. Bloomberg noted that House Republicans are moving closer to accepting President Trump’s suggestion to combine tax legislation with a repeal of Obamacare’s individual mandate and pointed out that while such a move would provide an estimated $416B in deeply needed offsets, it risks alienating Republican senators.
  • President Trump’s declining approval ratings also caught some headlines. However, Trump’s weak approval ratings have not been a concern for the market. A number of articles discussed the strength in stocks over the last year since Trump’s surprise election victory.

CPWM Weekly Market Monitor (2017.11.13)