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Market Recap – A New Tax Plan

Market Digest – Week Ending 4/28/2017

U.S. stocks closed down Friday, but up 1% for April despite weak GDP data. Large tech institutions reported earnings, with Amazon and Alphabet having large gains this week after their quarterly results beat estimates. Overall Profits of S&P 500 companies are estimated to have risen 12.4% in the first quarter, the most since 2011, according to Thomson Reuters.

Weekly Returns:
S&P 500: 2,384.20 (+0.46%)
FTSE All-World ex-US: (+1.73%)
US 10 Year Treasury Yield: 2.28% (+0.04%)
Gold: $1,268 (-0.1%)
USD/EUR: $1.089 (+1.49%)

Major Events:

  • Monday – GM loses legal bid to limit fallout from ignition switch cases
  • Tuesday – Case Shiller’s monthly home reports came out – for the fourth consecutive month, property values nationwide are at an all-time high
  • Wednesday –Trump unveils a broad tax-cut plan
  • Thursday – Verizon invests in self-driving car startup Renovo
  • Friday – Data showed GDP increased at a 0.7% annual rate, below the 1.2% rise estimated by economists

Our take:

The big news this week is the release of Trump’s tax plan. It’s a big proposal, but it’s more of an opening bid for negotiations to get legislation passed through the House and Senate. More than likely, this is not the version that will pass, if anything does pass, in 2017.

Below are some proposed tax plan highlights:

  • Repeal the alternative minimum tax (AMT) and the 3.8% Obamacare tax
  • Cut the number of personal income tax brackets from seven to three, with the top rate at 35% vs. the current 39.6%
  • Chop the corporate tax rate to 15% from 35%
  • Eliminate tax deductions, keeping only a few exceptions like the mortgage interest and charitable contributions
  • Eliminate estate tax
  • Eliminate state and local income tax deductions

Some thoughts on the challenges of passing legislation:

  • Bipartisanship isn’t likely – there are very few indications of Democratic support for the plan
  • Republicans themselves are divided and even though they don’t need Democrats to sign on to their plan if they want to “use the Senate’s budget reconciliation process to push the legislation through Congress,” they do need unity in their own party to do so
  • Lobbyists will either attack or support parts of the plan – many special interest and trade groups are taking a big interest, from retail to oil, and importers to real estate
  • The new administration cannot offer any insight currently into how middle-income Americans will fare under Trump’s plan, with many experts saying his plan only supports the rich: a direct contrast to the platform under which Trump ran

What happens next
It will be a long road ahead – a lot of basic information is still missing including how much this will cost.

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