Daily Archives: October 9, 2017

Heads Up!

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According to CCH, the highly respected tax reporting service, the House approved the Fiscal Year (FY) 2018 Budget Resolution (BR) by a 219–to-206 vote on October 5. The measure is intended to serve as the legislative vehicle for tax reform. All present Democrats and 18 Republicans voted against the measure.

Meanwhile, the Senate Budget Committee approved its own budget resolution (BR) on October 5. A full Senate vote is expected the week of October 16. The two BRs are expected to go to conference to reconcile differences to reach full congressional passage, which would unlock the reconciliation process, enabling tax reform legislation to pass with only a simple GOP majority.

The BR includes a policy statement on tax reform and specifically recommends five policy items:

(1) simplifying the tax code to make it fairer for American families and businesses and reducing time needed for tax compliance;

(2) substantially lowering tax rates for individuals and consolidating the current seven income tax brackets;

(3) repealing the Alternative Minimum Tax (AMT);

(4) reducing the corporate tax rate; and

(5) transitioning the tax code to a more competitive system of international taxation.

We believe Congress is only 20% through the process of passing meaningful tax reform. There are many hurdles to clear before legislation is passed into law. We will keep you informed on the progress of this important legislation.

Update – Washington

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The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration.  What will happen next? It’s still to be determined!

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses. SOME PROGRESS HAS BEEN MADE RECENTLY.  CUMULATIVE PROGRESS TOWARD GOAL: 20%
  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. NO PROGRESS RECENTLY.  CUMULATIVE PROGRESS TOWARD GOAL: 0%
  3. Affordable Care Act amendment, reform or reorganization.CONGRESS HAS STUMBLED EVERY TIME IT TRIED TO ACT. CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.
  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 40%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative. 

The “Heat Map”

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Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade is a B+ (favorable).

THE FED AND ITS POLICIES: This factor is rated C- (Below average).

BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable).

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 6.  These risks deserve our ongoing attention.

The Numbers

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Last week, U.S. stocks increased.  Bonds declined. And Foreign Stocks remained unchanged. During the last 12 months, STOCKS outperformed BONDS.

Returns through 10-6-2017

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

-.1

3.0

.4

2.5

2.1

4.3

US Stocks-Standard & Poor’s 500

1.2

15.7

20.4

11.4

14.2

7.4

Foreign Stocks- MS EAFE Developed Countries

.0

19.9

19.5

5.7

7.9

1.2

Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.

“Your Financial Choices”

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The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®.  This week Laurie and guest host Tim Roof CFP® , Vice President of Valley National Financial Advisors, will discuss: “The language of investments”

Laurie and Tim will take your calls on this topic and other inquiries this week.  Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie.  This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area– or listen to it online from anywhere on the internet.  For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

Motivational Quote of the Week

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“Golf is a game where you must learn to detach from the outcome. You can’t focus on the past; you must stay present in the moment, and deal with the constantly changing variables that exist every time you step up to the tee.” – Mary Lengle

The Markets This Week

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After another week of strong gains for stocks, the fear of missing out could drive this bull market even higher.

Last week, the Dow Jones Industrial Average climbed 368.58 points, or 1.6%, to 22,773.67, its fourth consecutive week of gains. The Nasdaq Composite gained 1.5% to 6590.18, a record high, while the Standard & Poor’s 500 index rose to 2549.33.

And what well-earned gains they were. Early last week, the Institute for Supply Management’s manufacturing index hit 60.8, its highest level since 2004. That was followed by better-than-expected jobless claims and durable goods orders on Thursday. Even Friday’s weaker-than-expected payrolls report could be explained away due to the hurricanes that hammered the country during September. Looking ahead to next week, September’s consumer-price-index data could provide more evidence of a not-too-hot, not-too-cold economy.

“Generally, fundamentals look good,” says Greg Woodard, portfolio strategist at Manning & Napier. “We expect the expansion to continue at slow rate.”

Speaking of slow: The S&P 500 has now gone 332 days without a 5% drop, second only to the 333-day rally that began on Nov. 23, 1994, notes William O’Neil strategist Randy Watts. (Yes, that means that if we make it through Tuesday without a selloff, it will be the longest such streak on record.)

The rate of the change, however, has been downright snail-like, with the market rising about 33%, or just under 0.1% a day, over the course of the rally. During the rally that began in 1994, the market gained about 58%, or 0.17% a day. “It’s rare to go this long without a correction,” Watts says. “But the economic recovery has been more muted than in the past.”

Even so, are investors getting too complacent? Bank of America Merrill Lynch’s sell-side indicator, which tracks optimism among Wall Street strategists, remained at 55.4 in September, near its highest level since 2011. Using a 15-year average, that’s nothing to worry about—the market has been higher 12 months later 61% of the time following such readings. But switch to a four-year time average and it’s more worrisome, with a drop occurring 49% of the time. “Sentiment levels are now at relative levels that have historically indicated weak returns over the next 12 months,” says Merrill Lynch strategist Savita Subramanian.

But that’s so 12-months-from-now. Wellington Shields technical analyst Frank Gretz points out that bull markets generally see a “blowoff” move from at least one market sector before all is said and done. He points to 2007 and the rally in oil stocks—the energy sector gained 32% that year as the market was topping—and I’d add the tech sector’s 78% rise in 1999.

(Source: Barrons Online)