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Tax Reform Plan Details in Coming Weeks

A strong week helped keep the S&P 500’s monthly winning streak alive, although the red-hot NASDAQ had the first negative down month in recent memory. The devastation of Harvey and more provocations by North Korea were overlooked by investors in favor of strong GDP growth, potential tax reform, a friendly jobs report and views that central banks will remain accommodative.

Weekly Returns:
S&P 500: 2,477 (+1.4%)
FTSE All-World ex-US: (+0.5%)
US 10 Year Treasury Yield: 2.16% (-0.01%)
Gold: $1,325 (+2.6%)
EUR/USD: $1.186 (-0.4%)

Major Events:

  • Monday – Apple announced it will hold a product launch event on September 12th.
  • Monday – Gilead Sciences bought Kite Pharma for $11 billion in a bet on a new kind of cancer therapy.
  • Monday – Amazon made waves by announcing price cuts on a broad range of items at recently acquired Whole Foods.
  • Tuesday – United Technologies was said to be near a deal to acquire Rockwell Collins for more than $20 billion.
  • Wednesday – Q2 GDP growth was revised up to 3.0%.
  • Thursday – Uber’s new CEO set a timeline for planned IPO at 18-36 months.
  • Thursday – Wells Fargo increased its estimates of potentially unauthorized accounts opened from 2.1 million to 3.5 million.
  • Thursday – Treasury Secretary Mnuchin said the White House will release tax reform plans in the coming weeks.
  • Friday – The US economy added 156,000 jobs in August, a minor slowdown from the previous two months. Unemployment ticked up to 4.4%.

Our Takeaway:

The Trump administration promised more detail on planned tax reform in the coming weeks. So far it has been big on promises but light on details. Statements to the public have focused on potential tax reductions for the middle class, but the biggest impact could be on corporate rates, which Trump wants to lower. It is debatable if this is good for the country, but it probably would be good for owners of stocks. We think the likelihood of passage of some kind of tax bill is high but far from certain. Many on the GOP side are desperate to show some kind of success.

Some potential benefits are likely already priced into stock prices so if nothing happens it would be a negative for the market, but it is hard to gauge the magnitude. Meanwhile, most people making market bets on politics or legislation over the last few years have been mostly wrong, so while we continue keep an eye on things like individual capital gains rates, for now we don’t think most investors should spend time worrying about tax legislation that may or may not ever happen.

Separately, Personal Capital surpassed $5 billion in assets under management this week. It is a nice milestone for us and helps validate that the combination of people and technology which we created, truly can create a better wealth management service in a scalable way. A big thank you to all of our clients and software users for making it possible.

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