Monthly Archives: November 2017

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 is 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. SIGNIFICANT PROGRESS HAS BEEN MADE RECENTLY.  CUMULATIVE PROGRESS TOWARD GOAL: 70%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. PROGRESS MADE ON TAX REFORM POINTS TOWARD PROGRESS IN THIS AREA, TOO. CUMULATIVE PROGRESS TOWARD GOAL: 25%

  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: 50%

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). So far, earnings reports for the 3rd quarter have been solid.

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 5. These risks deserve our ongoing attention.

“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: “Disaster Planning”

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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If, as the proverb suggests, people who expect nothing are blessed because they’re never disappointed, then most of us were left hurling curses at the market last week.

The bulls, because the major indexes couldn’t build on previous gains. Anyone hoping for a quick and easy path to tax reform, thanks to conflicting Senate and House plans. And even the bears, for the market’s failure to tumble despite the ample opportunity.

And what an opportunity it was. Last Thursday, the Standard & Poor’s 500 index dropped as much as 1.1%, but battled back to finish down just 0.4%. Instead of ending the benchmark’s streak without a 0.5% decline or more, it extended it to 47 days, the longest streak since 1965.

All told, the S&P 500 declined 0.2% to 2582.30 last week, while the Nasdaq Composite dipped 0.2% to 6750.94. The Dow Jones Industrial Average dropped 116.98 points, or 0.5%, to 23,422.21.

Of course, there are plenty more opportunities for disappointment to come. Tensions in the Middle East could continue to rise. Economic data this coming week will have latest inflation readings. Earnings from retail bellwethers like Wal-Mart Stores (ticker: WMT) and Home Depot (HD) are due. And, of course, the ongoing tax saga could continue to swing the market, in what Bank of America Merrill Lynch describes as “tax reform on, tax reform off.”

Even the conventional risk on/risk off trading pattern wasn’t what you would have expected last week. Normally, when stocks and other risky assets decline, bond yields fall and prices, which move in the opposite direction, rise, as investors seek a haven from the selling. And there were plenty of reasons to seek safety last week, including the continued turmoil in Saudi Arabia and fears of a bigger war in the Middle East, notes Steven Englander, head of research and strategy at Rafiki Capital Management.

But there are also plenty of reasons to worry that the Federal Reserve will continue to raise interest rates, which would explain the 0.064-percentage-point increase in the 10-year Treasury yield on Friday, the largest since September. “The up move in bond yields looks like fears that the tightening cycle is beginning, but it’s not really consistent with regional war and oil price concerns,” Englander says.

But who needs consistency, anyway? Remember, the stock market just finished one of the least volatile Octobers on record, while September, rather than living up to its reputation for tepid returns, produced a 1.9% gain for the S&P 500. So would it be any surprise if November—usually one of the strongest months of the year—falls well short of bullish expectations? Hedge funds, says Wellington Shields technical analyst Frank Gretz, appear to have loaded up on stocks to take advantage of the 11th month’s reputation for stellar gains, something he calls worrisome. “Talk is one thing,” Gretz says. “The worry part is if everyone acts on this positive seasonality.”

(Source: Barrons Online)

Heads Up!

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We have reviewed the income tax bill released by the House Ways and Means Committee – titled Tax Cuts and Jobs Act. It is complicated with its 460+ pages being too voluminous to recount here. And, it will be changed as Congress goes hither and thither to finalize. Importantly, more likely than not, an income tax bill will be passed.

As to investment management, we do not see our investment research providers making any significant changes to their economic moat ratings or fair value estimates because of the income tax bill in its current form. We will continue to monitor its development.

The headline corporate tax rate proposed in the Tax Cuts and Jobs Act is 20%, lower than our current 25% assumption..However, many revenue-related parts of the tax reform bill have been scaled back from initial proposals. For example, the latest bill allows the partial deduction of mortgage interest and property taxes. These alterations mean the current bill would likely raise federal debt levels more than many had initially projected. To attain the votes of spending hawks, the aggressiveness of the bill may have to be scaled back. The overall corporate tax rate remains a key lever for negotiation, as effective tax rates truly determine the competitiveness of the U.S. relative to other countries. Industry groups will certainly push to keep their tax credits, and to the extent these credits lower effective tax rates, a modestly higher headline rate can keep the U.S. competitive with other countries.

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 is 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. SIGNIFICANT PROGRESS HAS BEEN MADE RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 70%
  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. PROGRESS MADE ON TAX REFORM POINTS TOWARD PROGRESS IN THIS AREA, TOO. CUMULATIVE PROGRESS TOWARD GOAL: 25%
  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: 50%

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). So far, earnings reports for the 3rd quarter have been solid.

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 5. 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 11-3-2017

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

.4

3.4

1.0

2.5

2.1

4.1

US Stocks-Standard & Poor’s 500

.3

17.5

26.4

11.0

15.3

7.9

Foreign Stocks- MS EAFE Developed Countries

.9

22.2

24.8

6.6

8.5

1.3

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: “Planning for and with children”

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.