Financial Review

And It’s Back

…..Stocks bounce back. House passes their version of tax cuts, now it moves to the Senate. Walmart, Cisco, and P&G post big gains. Homebuilder confidence up. Fed heads consider how to fight the next recession, and how to protect financial privacy. Tesla’s mind blowing big rig. …

Financial Review by Sinclair Noe for 11-16-2017

 

DOW + 187 = 23,458
SPX + 21 = 2585
NAS + 87 = 6793
RUT + 22 = 1486
10 Y + .03 = 2.36%
OIL – .16 = 55.17
GOLD + .70 = 1279.30

 

If you have been following the on-again, off-again path of the tax cut plan on Capitol Hill, it is becoming clear that a tax cut is not fully priced into stocks. Yesterday – bad news about the plan as the Senate linked another Obamacare repeal effort to the tax plan and the first Republican senator defected. Today – the House passed their initial version of the Tax Cuts and Jobs Act. That certainly wasn’t the only factor contributing to the bounce back in stocks, but it was noteworthy.

 

Cisco Systems leapt 6.2 percent, its biggest move since February 2016, after the internet gear maker reported a bigger profit than analysts expected and said revenue should grow in its next quarter after two years of declines.

 

Wal-Mart jumped over 10 percent after the retail giant reported strong third-quarter results and raised its annual profit outlook. Walmart, which has been challenging Amazon by adding products, partners and perks, saw online sales jump 50% in its most recent quarter. Food sales were strong as well, which means that Amazon’s purchase of Whole Foods makes even more sense. Walmart’s moves to revamp its stores and hone its customer service appear to be paying off as sales at U.S. stores open at least a year — a key industry measure of financial performance — rose 2.7%. Traffic, which has been dipping at many retailers as more consumers shop online, climbed 1.5%.  Walmart shares posted their biggest gain since May 2016.

 

Procter & Gamble was up 1.3 percent after activist investor Nelson Peltz said an independent count showed he won election to the consumer products company’s board.

 

Cisco, P&G, and Wal-mart are components of the Dow Industrial Average, so…

 

Technology sector stocks, which have done far better than the rest of the market this year, accounted for some of the biggest gains in early trading. Data storage company NetApp led the sector, picking up about 15% on a strong earnings report.

 

The House of Representatives passed tax legislation by a partisan vote of 227-205. That does not mean we have a new tax code. Now, the legislation moves over to the Senate, which has its own, different version. The Senate might vote next week. And because the Senate slides into the driver’s seat, the House was able to pass a badly flawed bill surely would not have passed on its own merits. But now, Republican representatives can go home and tell their base and their donors that they voted for the tax bill, without having to accept the responsibility of the bill actually inflicting damage on their constituents. A new congressional analysis found that the Senate’s revised tax bill would actually raise taxes on lower-income Americans within a few years. The Joint Committee on Taxation projected that Americans earning $30,000 or less would see their taxes increase beginning in 2021, if the Senate bill becomes law. The committee also projected that Americans earning $75,000 or less would face large tax increases in 2027, after the individual tax cuts expire. The updated analysis stems from the Senate’s last-minute inclusion of a provision that would repeal the Affordable Care Act’s requirement that most people buy health insurance. The repeal would lead many lower-income Americans to choose not to buy insurance, and thus not claim tax subsidies that currently help them defray the costs of health coverage. For those that remain, their insurance premiums would go up, probably by 10% or more – wiping out any tax savings and resulting in a net loss. And because of a 2010 budget law, the bill would trigger automatic cuts to Medicare and other important programs that low-income and middle-class Americans depend on. Medicare used to be considered the “third rail” – you don’t cut Medicare without incurring significant blowback. So, who benefits from the tax plan? The rich and corporations. Few voters seem fooled. Just 25 percent approved of the tax plan in a recent Quinnipiac poll, while 52 percent said they disapproved of it. Even some Republican lawmakers are beginning to catch on that this tax-cut plan is politically radioactive. The Senate bill is already teetering, with one Republican senator opposed and others voicing concerns. The GOP bill can lose no more than two senators to advance.

 

Thirteen Republican representatives voted against the bill today, all but one from states that have high income and property taxes. The House bill included a compromise on state and local tax deductions. The Senate bill does not accept the House compromise on state and local tax deductions, or SALT; it eliminates the break entirely, which could cause an exodus of Republican votes in the House if that were to be in the final bill. And the House bill does not repeal Obamacare’s individual mandate, which the Senate added to its proposal earlier this week.

 

Wall Street dropped the past couple of days as the tax bill hit a couple of obstacles. Wall Street cheered today as the House passed a bill, but it looks like most of the tax plan has been priced into the market already and the risk of legislation failing seems far greater than the reward of legislation actually passing. If positive news continues, we could see another bull run from the recent dip, but this is also a good time for caution.

 

House passage of the tax bill has another – likely unintended – consequence. It might kill off any chance for infrastructure spending. The House bill ends tax breaks for private activity bonds, a key part of public-private partnerships in projects ranging from roads to low-income housing. The administration has said it wants to leverage those partnerships to reduce the direct cost of the president’s building plan”

 

The National Association of Home Builders’ monthly confidence gauge rose two points to 70 in November. That was the second-highest reading since the housing bubble of 2005. The sub-index that tracks current sales conditions also rose two points, to 77, but the gauge of sales over the next six months dipped one point to 77. The home-builder lobby has been critical of recent developments in the tax reform debate, arguing that reform will quash demand for new homes. The group warned the bill proposed by House Republicans “eviscerates existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives.”

 

Arizona released data on nonfarm employment for October. The state unemployment rate dropped from 4.7% in September to 4.5% in October. The state added 18,700 jobs for the month. Arizona Nonfarm employment grew by 1.2% (32,000 jobs) over the year in October. The Private Sector accounted for 32,200 jobs (1.4%). Government employment decreased by 200 jobs in October.

 

San Francisco Fed President John Williams says global central bankers should take this moment of “relative economic calm” to rethink their approach to monetary policy, warning that to fight the next recession, as with the last, they would need to do more than just cut interest rates. With many major economies facing slower growth and thus lower interest rates even when unemployment is low, central banks will need to find ways to stimulate their economies that work even when many other countries are also trying to boost their growth. Williams says strategies that central banks should consider including not only the bond-buying and forward guidance used widely in the last recession, but also negative interest rates that was used in some non-U.S. countries, as well as untried tools including so-called price-level targeting or nominal-income targeting. Central banks may also want to consider setting a higher inflation target.

 

Meanwhile, Federal Reserve Governor Lael Brainard said today that traditional lenders should demand that online financial companies protect consumer privacy and money interests Banks often pay tech companies for the information they gather on borrowers. For that reason, those lenders can set high standards in consumer protection and privacy. Brainard said, “Banks have a stake in ensuring that their vendors and third-party service providers act appropriately, that consumers are protected and treated fairly, and that the banks’ reputations aren’t exposed to unnecessary risk”

 

Sandell Asset Management proposed to take Barnes & Noble private with the help of current shareholders and $500 million in debt financing in a deal that valued the company at more than $650 million, or over $9 per share. But the bookstore chain said the offer did not appear to be bona fide and seemed unlikely to happen.

 

Casino operator Caesars Entertainment said it would buy privately owned casino and horse racing company Centaur Holdings LLC for $1.7 billion in cash to expand in Indiana.

 

Emerson Electric raised its cash-and-stock offer to acquire Rockwell Automation to $29 billion, ratcheting up pressure on its smaller peer to engage in deal talks.

 

Tesla short sellers finally made some money this month. They’ve raked in $890 million in mark-to-market profits since the start of the fourth quarter, according to data compiled by the financial-analytics firm S3 Partners. At least until today. Tesla bounced back, a little, enough to shake out at least a few short-sellers. In a couple of hours, Elon Musk will unveil a new Tesla a self-driving big rig semi-trailer (electric, of course). The Tesla semi was anything but a 10-4-good-buddy move for Tesla. While many observers expected a pickup truck to join the carmaker’s lineup of all-electric cars, the big rig was a surprise. Musk tweeted, that the truck would “blow your mind clear out of your skull and into an alternate dimension.” Which seems like a totally fine and not at all hyperbolic way to manage expectations.

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