Markets, Economy

Weekly Kickstart (11/13/2017-11/17/2017)

11/13/17 8:00 AM

/iStock-531001517.jpgThe market melt-up took a pause last week, as the S&P 500 fell by 0.21 percent to 2,582.30. Despite the small loss, the benchmark index is still up a solid 15.34 percent year-to-date, and just 0.47 percent below the all-time closing high. This was also the first weekly decline for the S&P 500 since September due in part to increased uncertainty about tax reform. Indeed, the House of Representatives and the Senate each released their own version of potential changes to the tax code this month and there are a few key differences between the two bills that bring into question what the final piece of legislation that makes its way to the President’s desk will look like.


One such disagreement is when corporate tax cuts will kick in. Specifically, the House bill wants the drop in the corporate tax rate to take effect immediately in 2018, while the Senate bill would delay a corporate tax cut by one year to 2019. Fiscal constraints make it more likely that a corporate tax rate reduction will be phased in. However, it is still early in the legislative process and stocks recouped most of their earlier losses by Friday’s close in anticipation that something more favorable is achieved in the final House-Senate compromise. Companies reporting earnings recently have been vocal about potential tax reform, according to FactSet, and below are a few highlights:

  • “Modernizing what you could argue is an outdated United States tax code for competitiveness for the U.S. in jobs and investment is critical for the U.S. economy over the longer term… So again, we applaud the U.S. government for being serious about tax reform.” – Perrigo
  • “I think generally the view from our corporate customers, not surprisingly, is if tax reform gets done, it will be a boost to the economy, a boost to their fortunes, and a boost to GDP generally. And in that sense I think they would be a bit more optimistic about growth.” –Marriott International
  • “To be clear, we have not underwritten the benefit of a tax reform policy passing this year or next, but recognize that could be very positive for the U.S. economy and our business.” –Host Hotels & Resorts
  • “Longer term lower corporate tax rates all things being equal are a positive for us and for businesses. And so we look at the opportunity for tax reduction as being something that's going to be beneficial.” –Prudential Financial

To recap a few of the things we learned about the economy last week, the positives included that consumer credit jumped, total job openings rose, the number of unemployed Americans per job opening slid to a record low, and the ratio of quits to layoffs and discharges lifted to the best reading since May. As for the negatives, refinance applications declined, initial jobless claims edged higher, and consumer confidence unexpectedly fell. This week the pace of economic data picks up slightly with a few important reports on consumers, manufacturing, employment, inflation, and small business scheduled to be released.

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

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Sources: Econoday, FactSet, Goldman Sachs, FRBSL

Post author: Charles Couch