A new tax policy is now in the mix as the last gasp of a Obamacare repeal is now dead. The markets have been resilient in September despite the Fed’s announcement last week that the party is over with loose monetary policy. October is upon us and now the market is expecting some market friendly tax legislation out of Congress.
The “Trump Rally” that started after the election essentially ended in March as legislative efforts were showing to be more difficult than expected. Without the promised changes, the rally may have been for naught. Since that time, we have seen the market leaders (Apple, Facebook, Google, etc..) and the NASDAQ break their uptrend in early June along along with a Russell 2000 small cap index that has done little since last December. This price action warns of a weakening uptrend, however, there may be signs of a turnaround – see more in the Chart Time! section.
The tax bill has promise to be a catalyst as the markets are at a crossroads. If we get leadership from growth companies (not the DOW) in the next week, we may have something that can be sustained in the coming months. Otherwise, the alternate scenario where the market leaders drag down the broader indices may come back into play. The closing price action last week tells me that the market is starting to believe that Congress will get “something” done and that Republicans will be open for negotiation to get at least one victory. Alternatively, the positive price action last week may have been window dressing for the end of Q3. If the tax bill fails in October, then we better have a really good earnings season in the coming weeks to maintain positive momentum.
Fun Fact of the Week: Global Stock Values are 110% of Global GDP.
Economic & Central Banking Snippets
- The final release of Q2 GDP came in largely as expected, continuing to point to a solid rebound in growth after a soft first quarter. While Thursday’s Q2 GDP data release itself had limited implications for the near-term growth outlook, concurrently-released data in inventories made for more impactful shifts to higher Q3 GDP readings. (Morgan Stanley)
- US orders for long-lasting goods bounced back in August after suffering their worst monthly drop in nearly three years. The US Commerce Department said on Wednesday that new orders for manufactured durable goods rose 1.7% last month. That’s better than the 1% increase that analysts were expecting and follows a 6.8% slump in July. The gain was largely driven by demand for new transportation equipment, with orders in the segment up 4.9% in August. Excluding the transportation component, new orders increased 0.2%. The data should offer some relief to US economic data watchers who have been concerned about the potential impact that the recent devastating hurricanes could have on economic growth. (FT)
- Fed Chair Janet Yellen feels that the central bank may have been wrong on employment and inflation. In a speech in Cleveland, she explained that the misreading could lead to easier policy than expected in the unwinding of its balance sheet. However, she maintained that the Fed should stick to its rate path, pushing the dollar index to an almost one-month high. (FT)
- Personal spending rose 0.1%M, with spending on goods down 0.6%M, driven by a 1.1%M decline in spending on durable goods vs nondurable goods up 0.3%M, and spending on services up 0.3%M. (MS)
S&P 500 (SPY)
NASDAQ – QQQ ETF
Russell 2000 – Small Caps (IWM ETF)
- General Motors is laying off the overnight shift at a Tennessee sport-utility vehicle plant, idling hundreds of workers due to “moderating” sales. That’s troubling if it shows a broader car-market slowdown has extended into popular SUVs. The plant at Spring Hill, Tenn., makes the GMC Acadia and Cadillac XT5 crossover SUV models. About 1,000 people work the overnight shift, though some will likely shift to other parts of the operation. “Although crossovers now make up a larger share of the automotive industry, overall volumes are moderating,” GM said in a note to employees. “We believe the best way to react … is to reduce output.”
- Equifax chief quits Critics of Equifax have vowed to keep pressure on the credit-reporting company even after its chairman and chief executive Richard Smith stepped down just days before he was due to testify in Washington about a data breach scandal. (FT)
- The disaster in Puerto Rico probably reduced the amount investors will be able to recover from the territory’s defaulted bonds. Puerto Rico’s general obligation debt prices fell sharply in recent days.
- Uncertainties for iPhone X Shares in Taiwan’s Apple suppliers have taken a hit from worse than expected sales forecasts for the iPhone 8 and production issues associated with the upcoming iPhone X. Now two executives working for iPhone suppliers have reportedly said that makers of 3D sensor parts are still struggling to meet demand, though it is unclear how it might affect delivery of the new smartphone. (FT, NAR)
- Progress in 3D printing technology will see 25% of world trade wiped out by 2060, with carmakers among the most affected, according to estimates in a report by ING. The report describes the technology as still in its infancy but said that once high-speed mass production becomes economically viable, 3D printing would lead to “less trade growth because 3D printers use far less labor, reducing the need to import intermediate and final goods from low wage countries”. At current growth rates, half of all manufactured goods will be printed in 40 years, according to the report’s more conservative estimate.If investment in the technology was doubled every five years, that impact could be seen as early as 2040.“Automotive, industrial machinery and consumer products are the industries that, as a result of 3D printing, will take the lead in suppressing cross border trade,” the report said. “These industries are top investors in 3D printers and are large players in world trade.” As the US need to import will decline, its trade deficit with countries like Germany, Mexico and China will also ease. (FT)