Markets, Economy

Weekly Kickstart (09/18/2017-09/22/2017)

9/18/17 8:00 AM

/iStock-532854850.jpgDespite mixed economic data, continued saber-rattling in North Korea, and a terrorist attack in London, stocks posted their best weekly gain since the start of 2017. Specifically, the S&P 500 jumped by 1.58 percent to 2,500.23. That was a new all-time closing high that left the benchmark index up a healthy 11.68 percent year-to-date. One factor behind last week’s rally was hurricane Irma’s last-minute shift away from Florida’s biggest population center, which helped it be a far less costly storm than it could have been. Another thing contributing to last week’s push higher in equities was renewed optimism in Washington about tax cuts. For example, House Speaker Paul Ryan on Wednesday said that an outline for the overhaul of the nation's tax code will be released later this month, and President Trump announced plans for a multi-state roadshow to help promote such efforts.

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However, there is still no clear road map for tax policy changes in America. For starters, there are at least two potential ways that Congress can approach a change to the tax system: sweeping tax reform like the Tax Reform Act (TRA) of 1986 and straightforward tax cuts similar to what occurred in the early 2000s. The TRA of 1986 achieved revenue neutrality through a handful of difficult trade-offs but this could be more challenging under the current political and budgetary environment. As a result, many analysts doubt that there will be comprehensive tax reform and instead see large tax cuts as the more probable outcome. Wells Fargo, for instance, now expects a tax cut bill to be passed in the first quarter of 2018 that lowers the corporate tax rate to 25 percent and doubles the standard deduction for individuals. Many unknowns remain, though, including how the stock market will react to the numerous iterations of tax policy proposals likely to be considered during the next few months.

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To recap a few of the things we learned about the economy last week, the positives included that mortgage and refinance applications jumped, small business owner optimism improved, the number of job openings in America climbed to a record high, and initial jobless claims pulled back following a Harvey-related spike in Texas. As for the negatives, manufacturing activity in the Northeast region of the country moderated, industrial production plunged, capacity utilization declined, consumer confidence cooled, retail sales unexpectedly fell, and both wholesale and consumer inflation pressures in America firmed. This week the pace of economic data slows down but there are still several important reports on housing and manufacturing scheduled to be released, along with a potentially market-moving announcement on monetary policy from the Federal Open Market Committee (FOMC) Wednesday afternoon.

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**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:

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Sources: Econoday, Bloomberg, Wells Fargo, FRBSL

Post author: Charles Couch

Disclosures