Financial Review

24K Magic

….Dow, S&P, Russell hit record highs. Exuberance over tax cuts. Tax plan would rip a hole in the budget, but looks poised to pass. Consumer spending slowed in October. Tillerson is here today, but tomorrow? CVS-Aetna. Look at the moon.

Financial Review by Sinclair Noe for 11-30-2017

DOW + 331 = 24,272
SPX + 21 = 2647
NAS + 49 = 6873
RUT + 1 = 1544
10 Y + .04 = 2.42%
OIL + .08 = 57.38
GOLD – 8.80 = 1275.60
Record highs for the Dow, the S&P, and the Russell. The Nasdaq recovered nicely from a nearly 1.5% decline yesterday, but not enough for a record.

 

Well, it’s pretty easy to see that the promise of a tax cut has been a big boost to Wall Street. Some estimates claim a corporate tax cut could boost S&P 500 earnings by 6%. The Senate convened at 10:30 a.m. this morning to continue discussing the bill after it passed a procedural vote on Wednesday. Republicans are using special procedures that shield the measure from a Democratic filibuster. Debate on the legislation is limited to 20 hours. When the debate ends, it will be time for a vote-a-rama, a marathon of amendment votes. Eventually, the Senate would vote to pass the tax bill. But before then, the contents of that bill are expected to change. Republicans have been discussing significant revisions to their bill as party leaders try to secure the votes they need for passage.

 

The congressional Joint Committee on Taxation said Wednesday afternoon that the Senate tax bill would add $1 trillion to federal budget deficits over the next decade, even after accounting for additional economic growth, a major blow to Republicans’ contention that the $1.5 trillion tax cuts in the bill will pay for themselves through growth.

 

The committee, which serves as the scorekeeper for growth and revenue estimates in tax bills, estimated that the Senate bill would boost economic growth by 0.8 percent over a decade. Republicans have said they expect substantially stronger growth than that to result from the tax cuts. Throughout the tax debate over the last month, Republican leaders have frequently cited other analyses by the committee in order to make their case for the bill. The committee said economic growth generated by the tax cut will offset losses by about $458 billion over the next decade. Over that same period, an additional $51 billion will be needed to pay interest on the additional debt the government will borrow to pay for the tax cuts. The Joint Committee on Taxation calculates the budgetary effects of changes in economic growth are projected to reduce the deficit by $407 billion during the budget window, with the net deficit increasing by $1 trillion. That’s consistent with the findings of the Penn-Wharton model, which projects the Senate tax bill would increase growth by less than 0.1 percent a year, due largely to the drag from increased debt. Congressional Republicans and the Trump administration have yet to produce an analysis supporting their claims that the $1.5 trillion tax cut would not add to federal budget deficits. Instead, they cite a ballpark estimate of the additional economic growth the tax plan will unleash, which, they say, should be enough to make the cuts pay for themselves.

 

While there are still many unresolved details to the Tax Plan, at its core it is legislation that will change major areas of American life, plus everything from education to health care. Corporate taxes, along with those on wealthy Americans, would be slashed on the presumption that when people in penthouses get relief, the benefits flow down to basement tenements. Elements in both the House and Senate bills could constrain the ability of state and local governments to levy their own taxes, pressuring them to limit spending on health care, education, public transportation and social services. The Congressional Budget Office warned the tax cut package could trigger rules mandating cuts to Medicare. Some 13 million people could lose health care via the elimination of a key plank of Obamacare. Insurance premiums are also expected to rise by 10 percent. The House bill includes provisions that would end the deductibility of tuition waivers for graduate students and repeal the deduction for interest paid on student loans. Both chambers’ bills would tax investment earnings from university endowments.

 

Economists and tax experts are overwhelmingly skeptical that the bills in the House and Senate can generate meaningful job growth and economic expansion. Many view the legislation not as a product of genuine deliberation, but as a transfer of wealth to corporations and affluent individuals — both generous purveyors of campaign contributions. According to the Joint Committee on Taxation and the Congressional Budget Office, by 2027, people making $40,000 to $50,000 would pay a combined $5.3 billion more in taxes, while the group earning $1 million or more would get a $5.8 billion cut. In a recent University of Chicago survey of 38 prominent economists across the ideological spectrum, only one said the proposed tax cuts would yield substantial economic growth. Unanimously, the economists said the tax cuts would add to the long-term federal debt burden, now estimated at more than $20 trillion.

 

Consumer spending slowed in October as the hurricane-related boost to motor vehicle purchases faded, while a sustained increase in underlying price pressures suggested that a recent disinflationary trend had probably run its course. The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after surging 0.9 percent in September. The jump in spending in September was the largest since August 2009 and was spurred by some drivers in Texas and Florida replacing automobiles destroyed when Hurricanes Harvey and Irma slammed the states. Spending on long-lasting goods like autos fell 0.1 percent last month after accelerating 2.9 percent in September. Spending on nondurable goods such as prescription drugs and recreational items rose 0.2 percent. Outlays on services increased 0.3 percent. The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 0.2 percent in October after a similar gain in September. The so-called core PCE increased 1.4 percent in the 12 months through October.

 

The Labor Department said initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 238,000 for the week ended Nov. 25. Last week marked the 143rd consecutive week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent.

 

The White House is contemplating a scenario to replace Secretary of State Rex Tillerson with CIA Director Mike Pompeo within the next few months, according to multiple reports. There’s no decision yet on the timing of Tillerson’s departure, which has been expected for months. But multiple sources close to the White House and across government said Pompeo is the leading candidate to take over at the State Department.

 

Shares of the retail-pharmacy giant CVS and health insurer Aetna jumped in trading on Thursday after The Wall Street Journal reported that the two companies were nearing a deal. CVS was reported in late October to be in talks to buy Aetna in a deal worth about $66 billion. According to the latest report, CVS is nearing a majority-cash purchase of Aetna of $200 to $205 a share. Aetna’s stock gained 2% on the news. CVS rose by as much as 5%. Aetna previously agreed to buy rival insurer Human for $34 billion, but the Department of Justice blocked that deal. A judge ruled in favor of the DOJ in January, saying a combination of the two companies would be anticompetitive. For CVS, the acquisition is a way to fend off competition from Amazon, which has been speculated to be interested in the healthcare industry. It would allow the retailer to keep a greater share of each drug sale and to direct more Aetna clients into its stores.

 

OPEC members and other oil-producing countries agreed to extend production cuts until the end of 2018. Crude prices rose.

 

Kroger jumped more than 6 percent after the company forecast strong same-store sales for the four quarter and posted better-than-expected earnings.

 

Meanwhile, Costco shares climbed 3.9 percent after the company reported a 7.9 percent rises in same-store sales for November.

 

This weekend, for the several billionth or so time in Earth’s history, the Moon will be in the part of its orbit around Earth where it’s a little closer, 16,000 miles closer than usual, and it looks a teeny amount larger. Call it a Supermoon or whatever, you should look at the moon – this weekend, tonight, every night. It helps keep things in perspective.

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