Daily Archives: October 18, 2017

Heads Up!

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The Senate voted to take up the fiscal year 2018 budget resolution (BR) for debate, which includes reconciliation instructions for tax reform, by a party-line vote of 50 to 47). The Senate must pass a budget resolution for GOP lawmakers to have a legislative vehicle for tax reform. A Senate vote on the BR is expected on Friday, October 20, after allowing for 50 hours of debate.

Using a BR unlocks the reconciliation process for tax reform, which enables GOP lawmakers in the Senate to pass legislation by a simple majority, rather than 60 votes, if no Democratic support can be garnered. Senate Democrats criticize the BR for implementing budget cuts for the sake of providing tax cuts to the wealthy.

Sen. Rand Paul, R-Ky., a controversial figure in the BR’s prospect for success, voted yes to take up debate on the BR, but has expressed criticism of the measure for not including budget caps, stating it is not currently fiscally conservative. If approved, the Senate and House will likely go to conference to reconcile the differences between the two BRs.

“Specifically, this budget resolution contains a $1.5-trillion reconciliation instruction for tax reform. That is a good number, putting meaningful tax reform within reach,” Senate Finance Committee (SFC) Chairman Orrin G. Hatch, R-Utah, said on the Senate floor on October 17. Hatch stated that the taxwriting SFC is currently crafting tax reform legislation pursuant to the guideposts of the Trump administration and top GOP lawmakers’ unified framework.

“Our bill, based on the unified tax reform framework, will give much-needed relief to millions of low-to-middle income families. But, without this budget resolution…we’re unlikely to get there,” Hatch said.

Source: CCH

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: 30%
  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, Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS.

Returns through 10-13-2017

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

.5

3.5

.9

2.5

2.1

4.3

US Stocks-Standard & Poor’s 500

.2

15.9

22.2

13.2

14.7

7.3

Foreign Stocks- MS EAFE Developed Countries

1.6

21.8

24.2

7.3

8.9

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 will discuss:

“You don’t know what you don’t know – a punch list of misconceptions”

Laurie 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.

The Markets This Week

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Tech stocks took a break last week—surrendering their star role as the third-quarter earnings season kicked into gear. They were up 1.3%, only the third-best sector performance, trailing real estate, up 1.8%, and consumer staples, up 1.5%.

The Dow Jones Industrial Average closed at 22,871, up 0.43% on the week, and the Standard & Poor’s 500 index gained 0.15%, closing at 2,553. The Nasdaq Composite, which rose 0.24% to finish the session at 6,605, set another all-time high.

Binky Chadha, chief U.S. and global equity strategist at Deutsche Bank, described the weekly action as “a modest grind higher.”

The Russell 2000 Index, a bellwether for small-cap stocks that had made big gains from mid-August through the end of September, bucked the trend and closed the week at 1,502, down half a percentage point.

The 10-year U.S. Treasury ended the week yielding 2.28%, the third trading session out of the previous four that investors bid up prices. (Bond prices move in the opposite direction of yields.) Inflation expectations for the next 12 months fell to 2.3% from 2.7% a month earlier, according to the University of Michigan Consumer Sentiment Survey. Lower inflation is less of a threat to fixed-income yields and makes it harder for the Federal Reserve to raise rates again in 2017.

Still, says Chadha, “Our call is that inflation will move up and bond yields will go higher,” adding that the firm forecasts the 10-year Treasury will yield 2.75% at the end of this year, about half a percentage point above where it was late last week.

Even though the large-stock indexes ended the week in positive territory, they didn’t make the big moves they have in recent weeks, as evidenced by gains of half a percentage point or less.

The week served as a breather for many stocks, says Frank Cappelleri, a technical analyst at Instinet, a subsidiary of Nomura. “I don’t think it’s a surprise to anyone to see some of these moves being digested,” he says.

(Source: Barrons Online)