Stock declined slightly today after President Trump signed the tax reform bill. This is a little of the ‘buy the rumor, sell the news’ theory. Stocks have increased five straight weeks on optimism of a large reduction in the corporate income tax rate. From my perspective, the corporate tax cut is the most significant portion of this bill. The federal rate was decreased from 35% to 21%, in line with the EU average (21%) and 6 percentage points below Germany (28%). This will make the US economy even more attractive for US and foreign investment.
On the heels of the bill passing, numerous large companies announced wage and investment increases and one time bonuses for employees. AT&T announced it would invest an additional $1 billion in 2018 because of the new tax law and would pay all ~200k employees a $1,000 bonus before year end. Other companies such as Wells Fargo and Fifth Third Bank announced they would raise their minimum wage to $15/hour for all employees. I’m sure some portion of this is a nice PR effort by these companies, but I also believe lower corporate taxes are a net benefit to the economy. The tax savings are available for increased investment, wages, dividends or simply higher profits. All of those options provide positive benefits to the economy. Read More & More
Apple admitted this week that its iPhone systems are designed to slow down as the phones age. The company claims the process is in place to help keep older phones, with older batteries, working at peak performance. Many consumers are concerned it was done to encourage people to upgrade to a newer phone. Apple’s view makes some sense as batteries age and usage demands increase over time, but some consumers feel this should have been disclosed or set up as a option that a user could pick instead of having no control over the slowing. There is now a lawsuit against the company in California over this issue. Read More
Oil increased 1.7% this week to close at $58.32/barrel. The yield on the 10-yr Treasury moved sharply higher, up to 2.49% from 2.35% last week. The average rate on a 30-yr fixed rate mortgage ticked higher to 3.94% from 3.93% a week ago.