11/3/17 – Stocks Higher, New Fed Chair Nominated & Trump’s Tax Plan

  • Stocks slightly higher as earnings continue
  • Jerome Powell nominated for Fed Chair
  • GOP tax plan released

Stocks finished the week slightly higher in a busy week for financial news. This week marked the last busy earnings week for larger companies and saw companies such as Starbucks, Facebook and Apple exceed expectations. For the week the Dow gained 0.4% while the S&P 500 increased 0.2%.

As expected, President Trump nominated Jerome Powell to be the next Fed Chair. Powell is a Republican who was appointed Fed Governor by President Obama. I thought Janet Yellen was doing a great job, but this is a good replacement choice. Over the last five years, Yellen and Powell have voted the same on all policy change issues. I would expect Powell to continue the course Yellen established. This seems like Trump was able to replace Yellen with someone very similar while still appeasing some of his base by replacing Yellen who was appointed by Obama. Yellen becomes the first Fed Chair to not serve a second term since Warren Miller in the late 70s. It’s unfortunate that she appears to be a political victim in a position that really should be non-partisan. Read More

The GOP released its tax plan this week. The tax bill includes a large cut to corporate income tax rates. The current corporate rate is 35% while this bill proposes a 20% rate. I’ve written many times how we need to lower our corporate tax rate. We have the highest corporate tax rate among developed countries by a wide margin. A 20% rate would bring us close to the average rate of advanced economies. The changes to the individual tax rates are less clear. The plan proposes fewer tax brackets, a larger standard deduction, but allows for fewer deductions. The income brackets are also different, so it’s not a cut and dry tax cut for people, although almost everyone will see some sort of tax deduction. The top 20% of taxpayers pay almost 95% of all personal income taxes, so it makes sense that more affluent Americans will see a bigger benefit from any tax cuts. I’m neither here no there on changing the personal tax code, but I do believe reducing the corporate rate would be beneficial to economic growth, investment and employment. Read More

Oil rose sharply again this week, increasing 3.2% to close at $55.65/barrel. The yield on the 10-yr Treasury moved lower, down to 2.33% from 2.42% last week. The average rate on a 30-yr mortgage held steady at 3.94%.

Close Weekly YTD
Dow Jones 23,539.14 0.4% 19.1%
S&P 500 2,587.84 0.% 15.6%
Oil 55.65 3.2% 3.3%
10-yr Treasury (∆ in bps) 2.33 (9) (12)

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