Stocks Slide for Week as Wall Street Sees Little Hope for Tax Reform

For the week, the Dow Jones Industrial Average declined 0.50% finishing with its first weekly decline after eight straight weekly gains, though the blue chip index remained less than 150 points from an all-time closing high set on Wednesday, November 8.

The S&P 500 finished the week lower as well, but only marginally so. It was the S&P's first weekly decline in nine weeks. The NASDAQ posted its first weekly loss in seven weeks. Both the NASDAQ and S&P closed at record highs on Wednesday as well.

The one index that did not reach record highs during the week past was also the broadest. The NYSE Composite index closed down for the second week in the past three, but those losses were more than offset by gains in the prior six weeks.

In general, analysts blamed congress for the poor performance in equities, citing the lack of a clear path to a tax overhaul that was a cornerstone of President Trump's winning strategy of a year ago. The House and Senate both introduced measures that vary widely and seem unlikely to offer much in the way of relief for individuals or businesses. Rolled out on Thursday, the Senate version pushes for a permanent (until they change it) tax rate of 20% for corporations, but delays implementing the proposed rate until 2019.

Both versions increase the standard deduction to $12,000 for individuals and $24,000 for married couples filing joint returns, but the congress and the media fail to mention that both versions cut out the personal exemption, which was $4,050 in 2016. That leaves the net gain for most single taxpayers at $1,650, and $3,300 for couples.

The standard deduction for 2016 was $6300 for singles, and $12,600 for married couples.

With Democrats generally understood to oppose any Republican plan, the chances for passage this year of either bill remain slim. President Trump and conservative leaders in the Senate face any number of challenges from the likes of Ted Cruz, John McCain, Bob Corker and others who have either stated their opposition to the measures or are likely to vote against any changes to the intricate, pitfall-ridden federal income tax code.

As far as Wall Street is concerned, lowering the corporate tax and the tax on offshore profits are at the top of the wish list, but, little is being done to address their concerns with a congress largely already focused on being re-elected in the 2018 midterms, now less than a year away.

It has become more than obvious to most Americans that congress is an inept, bought-and-paid body, loyal only to special interests which fund their expensive campaigns. Any thoughts of providing relief to beleaguered taxpayers or companies are beyond their admittedly limited legislative scope.

Thus, investors should treat any talk of reform coming from the mouths of elected officials in Washington as nothing more than make believe rhetoric, designed solely to make themselves appear to be working when they are, in fact, not.

At the Close, Friday, November 10, 2017:
Dow: 23,422.21, -39.73 (-0.17%)
NASDAQ: 6,750.94, +0.89 (+0.01%)
S&P 500: 2,582.30, -2.32 (-0.09%)
NYSE Composite: 12,322.60, -17.06 (-0.14%)

For the Week:
Dow: -116.98 (-0.50%)
NASDAQ: -13.50 (-0.20%)
S&P 500: -5.54 (-0.21%)
NYSE Composite: -50.46 (-0.41%)

Stocks Balk at Indecisive Congressional Tax Reform Efforts

Stocks tumbled at midweek as prospects for comprehensive tax reform dimmed in Washington.

The Senate was roundly blamed for the poor performance on the session, as a handful of Republicans expressed doubts over the version of the package submitted by the House days earlier.

A Republican bill was presented, with significant changes, including a permanent 20% business tax rate which would be implemented in 2019. The delay of more than a year concerned investors, though such concern is largely a canard, being that the effective rate for most significant corporations is about 14%.

As the day wore on the pain subsided and late buying boosted averages, though not enough to offset an across-the-board decline, putting the major indices in the red for the week.

Without a positive narrative and strategy for tax reform forthcoming for the congress, it appears that President Trump will be thwarted once again in his efforts to Make American Great Again, though many may argue that his initial tax proposals fell far short of any significant, progressive changes to the tax code.

Simplification would be an effective measure towards keeping the Trump loyalists in camp, but that does not appear to be on the congressional agenda, as per usual.

There's spreading sentiment that nothing will be done in terms of tax reform, which, like Social Security, Medicare/Medicaid, and immigration, has serious problems which year after year seem to defy the ability of congress to implement meaningful change. The more convenient route of promising change and delivering nothing of consequence appears to be the overriding theme of a congress that's essentially done nothing of benefit to the general population for the past twenty years.

As far as Wall Street is concerned, Washington is more a parody, a thinly-veiled lie at effective governance and thus it is, more often than not, discounted as meaningless.

The declines of Wednesday will be considered a sign of weakness, though most will express the opinion that "it's only a flesh wound."

At the Close, Thursday, November 9, 2017:
Dow: 23,461.94, -101.42 (-0.43%)
NASDAQ: 6,750.05, -39.06 (-0.58%)
S&P 500: 2,584.62, -9.76 (-0.38%)
NYSE Composite: 12,339.66, -45.05 (-0.36%)

Stocks Hit Roadblock as House Tax Plan Falters in Senate

With Rand Paul absent due to injury, senators John McCain and Ted Cruz already announced no votes, the much-ballyhooed house-Trump tax plan looks to be dead on arrival and investors are not pleased.

Tuesday's action in the markets were punctuated by a pronounced leveling of the yield curve, with 2-10 and 5-30 spreads plumbing new lows.

Just in case the bickering in Washington continues towards implosion - a highly likely event horizon - with Democrats aligning with no-vote Republicans, forward looking people will next look to the upcoming December deadline for the debt ceiling and an anticipated increase to the federal funds rate by the Fed's FOMC.

That's putting pressure on stocks as the market opens Wednesday, though the declines are far from substantial. Also of note is crude oil's decline off recent three-year highs, while precious metals continue to the upside, a split in the commodity complex.

President Trump continues his extensive Pacific tour, in China for the time being, as news flow should slow to a crawl as the week closes in on Friday. With stocks fluctuating, it may be time to seek out undervalued equities, if any are to be found. Stocks remain wildly overpriced with backing by central banks preventing any potential cascading declines.

At the Close, Tuesday, November 7, 2017:
Dow: 23,557.23, +8.81 (+0.04%)
NASDAQ: 6,767.78, -18.65 (-0.27%)
S&P 500: 2,590.64, -0.49 (-0.02%)
NYSE Composite: 12,371.25, -29.68 (-0.24%)

Saudi Purge Prompts Higher Prices for Oil, Precious Metals

Midday Monday, the commodity complex (especially gold, silver and WTI crude oil) took off to the upside, and, by the end of the day, had maintained their newfound levels, oil hitting a nearly three-year high.

This dramatic rise in the price of oil coincides with tumultuous incidents in Saudi Arabia, wherein 11 princes, four ministers and several former ministers have been detained. Some prominent businessman have also been placed on a so-called "no fly" list, as Crown Prince Mohammed bin Salman purges his enemies in an overt effort to considerate power in the kingdom.

Oil rising and Saudi unrest are not isolated events, as neither is the incidental visit by President Trump some months ago and the more recent visit by Trump advisor and son-in-law Jared Kushner.

The Saudis have seen their profits collapse as oil has languished under $50 for years, but the political shakeup may have more to do with overall foreign interests, primarily focused on investments in US companies such as Citibank and Twitter, via the kingdom's sovereign wealth fund.

Silver and gold also rising at the same time during the day as oil confirms that there was coordinated buying of commodities in the futures market. The move was far from insignificant and was presaged by a similar move to the downside in the complex on Friday, prior to the Saudi purge, which went public on Sunday.

With President Trump safely traveling in the Pacific, the intrigue is high that something major is afoot globally, recalling Trump's cryptic tweet a few weeks ago, "the calm before the storm."

It seems that the storm has arrived, at least in the middle East. Whether it continues to lash out across Europe and the United States is, at this time, still conjecture.

As has been demonstrated periodically in the past, commodity futures can be highly volatile and can have profound effects further into the supply and demand chain. If oil continues to rise, it may be time to take any number of protective measures, from purchasing a fuel-efficient vehicle, to selling the dollar, to buying precious metal in anticipation of a major - and long overdue - breakout.

While nothing in the interconnected world of finance operates in a vacuum, stocks could also feel some heat, though the markets have more than ample protection on the downside via central bank stealth and overt (Swiss National Bank) purchases.

It is apparent, however, that given the Saudi purge and the rise in the price of oil, something big is happening.

At the Close, Monday, November 6, 2017:
Dow: 23,548.42, +9.23 (+0.04%)
NASDAQ: 6,786.44, +22.00 (+0.33%)
S&P 500: 2,591.13, +3.29 (+0.13%)
NYSE Composite: 12,400.93, +27.87 (+0.23%)

Trump Nominates Jerome Powell As Fed Chair; Goldman Sachs Execs Happy

Some equities responded with favor to President Trump's nomination of ultimate insider, Jerome Powell, to the chairmanship of the Federal Reserve.

Without so much as the batting of a single eyelash, Goldman Sachs (GS), Microsoft (MSFT), McDonald's (MCD), Boeing (BA), and JP Morgan Chase (JPM) led the Dow to yet another record high, mainly upon the notion that Powell would continue to easy money and lax regulatory environment so loved by Wall Street.

It would be easy to point the finger at Mr. Trump for appeasing the status quo, though it might not be an accurate assessment of the situation. The president is smart enough to know that keeping Wall Street happy and profitable has a profound effect on his standing within the business community and promoting a life-long lawyer (not an economist) and financier with multiple ties to various private and public money machines goes a long way toward keeping the Fed on its current track (Powell has not cast a dissenting FOMC vote in his five years as a voting member.

There could be worse environments than the current regime controlling the global economy, though it is difficult to think of one that could compare with the outright rigging and asset-prompting the central banks have engaged in over the past ten years. In case one was not in complete agreement and chose not to engage in one of the longest and best-maintained bull markets in history, the past is prologue and the nomination of Powell ensures a smooth transition to the Fed's top post. More of the same would seem to be the open dialogue of the day.

Keeping the rich rich and the middle and lower classes entertained, while not the optimal policy directive, has served to keep the system afloat, despite its various warts, bruises and open wounds.

Much of finance is done behind closed doors and it's probably a good thing, because were the wicked deals to be generally known by the public, riotous behavior might ensue. Keeping the Fed on an even keel will likely result in ever higher prices for stocks and a more complacent (if that is even possible with the VIX hovering around 10) investment community.

What could go wrong?

At the Close, Thursday, November 2, 2017:
Dow: 23,516.26: +81.25 (+0.35%)
NASDAQ: 6,714.9429, -1.59 (-0.02%)
S&P 500: 2,579.85, +0.49 (+0.02%)
NYSE Composite: 12,372.96, +10.08 (+0.08%)