Stocks continued higher this week even while the odds of a potential government shutdown increased. Discussions remain ongoing, but at a minimum it appears the government will be partially shutdown for a least a few days. One party is seeking a relatively clean continuing resolution and the other party is trying to link a controversial issue to the bill. If this sounds remarkably familiar, but in reverse, you’re right. In 2013, Republicans wanted to include some Obamacare rollbacks in a funding bill and today Democrats want to included a DACA extension. Thankfully the market is looking past the political games and not allowing this to derail the rally. On the week, the Dow gained 1.0% while the S&P 500 increased 0.9%.
Apple announced this week a massive repatriation of overseas cash. This is an issue I’ve written about numerous times over the past few years. The US is the only major country to tax global earnings. The caveat is that companies can defer that tax as long as the cash remains overseas. This policy saw US corporations accumulate over $2.5 trillion in cash held overseas. The recent tax reform bill allows companies to repatriate that cash at a much lower tax rate, 15% vs 35%. As part of this move, Apple will pay $38 billion in taxes to bring the cash and other assets back to the US. Apple will invest $30 billion in US-based capital investments over the next five years as a result of the tax reform bill. Some critics have argued that Apple was planning this repatriation and US investment regardless, but I would argue they allowed over $200 billion in overseas cash to build up over the last ten years. They also borrowed money to pay dividends instead of bringing back foreign cash. Those two facts suggest the tax reform bill did help influence them to make this decision. Read More
Oil decreased 1.2% this week to close at $63.57/barrel. The yield on the 10-yr Treasury moved higher, to 2.66% from 2.55% last week. The average rate on a 30-yr fixed rate mortgage moved higher to 4.04% from 3.99% a week ago.