One Year Market Rally Over?

November 10, 2017

 

After the November 4th election results last year the markets took off – up up up.   Then as November opened up this year the markets seem to be losing ground.   We wrote about the craziness in a blog sometime ago. Specifically, that we felt the market pricing in all the long-term promises made by President Trump was insane!  The market was betting that all the promises, mainly the tax plan to reduce corporate tax and repatriation of funds, would magically happen. 

 

The Senate released its version of a tax reform bill today which called for delaying corporate tax cuts by one year. It also modified a number of  key areas including property tax, mortgage interest, and medical expenses.  Many doubt that Congress wants any Trump bill to pass and many analysts  cited this as the main reason for today's sell off.

 

Well, as we’ve seen no one is crazy about Trump.  All sides, Democrats, Republicans, and Independents, want Trump to fail, How best to have him fail?  Make certain all his initiatives, great or terrible, do not pass.  So no the market is taking a breath and saying – WAIT, we may not get new tax bill and if so have I ran equities up too high?

 

We think this is a temporary issue.  Will the tax bill pass?  Probably not and if it does it will be a long time coming.  But people read too much into the corporate tax cuts.  Earnings are very good overall and the global economy is growing.  So businesses should be doing very well.  Also, the tax cut is really a farce!  Why?  Because many corporations employee leagues of tax lawyers and some pay ZERO tax and other up to 21.2%.  So there is not tax cut.   Secondly, will companies repatriate cash into the US – probably not much.  Labor is still cheaper overseas in many areas.  So if the tax bill fails we see it as having no real effect on the bottom line.

 

U.S. equities retreated from record highs on Thursday as investors took some profits following a largely uninterrupted two-month rally. The major indices finished near the top of their trading ranges, with the S&P 500 and the Dow losing 0.4% apiece. The tech-heavy Nasdaq (-0.6%) underperformed as technology shares faced particularly heavy selling.

 

 

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