Market Commentary, 11/06/17
All major US market indexes finished up last week: the Dow +0.45%, the Nasdaq +0.94%, and the S&P 500 +0.26%. This marks the eighth consecutive week of gains, going back to mid-September.
The S&P 500 set record closing highs on 11 of October’s 22 trading days, for a total increase of 2.2%. The Dow rose 4.3% during the same time.
Week in Review
• Fed Nominee – As expected, President Trump nominated Federal Reserve board member Jerome Powell to succeed Janet Yellen as the Fed’s chair when Yellen’s four-year term ends in February. Powell is expected to maintain the current cautious approach on raising interest rates.
• Rate Wait – The Fed on Wednesday left short-term interest rates unchanged, and its policy statement bolstered market expectations that the Fed is likely to lift rates in mid-December at its final policy meeting of 2017.
• Inflation Watch – Wage data in the latest monthly jobs report was weak, and the reading could help keep a lid on inflation, giving the Fed plenty of room to maintain a measured approach to raising interest rates. After rising 12 cents in September, the average hourly wage slipped by a penny in October to $26.53
• Jobs Comeback – The overall thrust of the October jobs report was positive, as the economy generated 261,000 jobs. While that figure was below most economists’ forecasts, it marked a comeback from a weak result in September, when hurricanes weighed on hiring activity. Another positive: Unemployment slipped to 4.1%, the lowest in 17 years.
Proposed Tax Reform
The highly anticipated initial design of tax reform, dubbed the Tax Cuts and Jobs Act (TCJA) was released on Thursday.
Tax Brackets (married filing jointly):
• Pay no taxes up to the new $24,400 standard deduction
• 12% Up to $90,000
• 25% From $90,001 to $260,000
• 35% From $260,001 to $1,000,000
• 39.4% Above $1,000,000
• Increases the individual Estate Tax exemption to $10M immediately and will completely repeal the Federal Estate Tax after 6 years
• Increases the child tax credit to $1,600 (from $1,000)
• Adds a $300 tax credit for each parent
• Adds a $300 credit for a non-child dependent (college student or aging parent)
• Family Tax Credits are phase out from $110,00 to $230,000 MAGI
• Eliminates the deductions for state and local taxes and sales taxes
• Property tax deductions are limited to $10,000
• Mortgage interest deduction limits new mortgage debt to $500,000
• Reduces corporate income tax rate to 20% (from 35%)
• Eliminated the corporate alternative minimum tax
• Limits pass-through business income to 25%, subject to anti-abuse rules
• Can deduct the cost of qualifying property as of 09/27/17 (expires 2023)
The TCJA is a dramatic overhaul of the US tax code that is expected to be very pro-growth. In fact, a model run by the Tax Foundation, a leading independent tax policy research organization, estimates a boost in GDP of 3.9%, domestic capitals stock increase of 10.6%, wage growth of 3.1%, and the production of 975,000 new jobs.
End of the Year
The S&P 500 is up 16.9% YTD (through 10/31/17). The index has been up 19 of the last 25 Novembers and 20 of the last 25 Decembers. Over these same 25 years, the average gain in November is +1.7% and +1.4% in December. These market trends, in conjunction with the TCJA, are expected to lead the market even higher as the year draws to close.
Jeremiah Patterson, CFP®
Copelin Financial Advisors
514 Brooks Street
Sugar Land, TX 77478
Phone: 281 240-2902
Fax: 281 240-2856
Securities offered through ProEquities, Inc., a Registered Broker-Dealer and Member FINRA & SIPC Advisory Services offered through Harvest Investment Services, LLC., a Registered Investment Advisor Copelin Financial Advisors, Inc and Harvest Investment Services, LLC are independent of ProEquities, Inc.
Source: WE Sherman & Co., LLC, the Tax Foundation, and John Hancock