And now it's solid
Solid as a rock
That's what this love is
That's what we've got, oh

Solid
-Ashford & Simpson

 

FOMC Meeting & Fed Speak	September 20	November 1
Economic Activity	Moderately	Solid Rate
Household Spending	Moderate	Moderate
Inflation (food and energy)	Declining	Remains Soft
Inflation (overall)	Around 2% medium term	Around 2% medium term
Balance Sheet	Will initiate normalization	Initiated October is proceeding

                               

After wrapping up its two-day Federal Open Market Committee (FOMC) gathering, the Federal Reserve decided to leave rates unchanged. However, the committee reiterated enough confidence in economic growth and higher inflation to add credence to the conventional wisdom that there will be a rate hike next month.

The Fed is playing ball with Wall Street for the most part, and perhaps even telegraphing the next chairman who will not aggressively remove accommodation. That would mean Taylor is out, and perhaps Yellen is neck and neck with Jerome Powell, who’s gotten flack lately for not being an economist.

The Street is cool with a rate hike next month after all the positive economic data that has served to underpin this stock market rally. Moreover, investors were happy to hear the Fed call the economy “solid,” although there are misgivings about how sanguine Yellen & Company have been on the stubborn lack of inflation. 

The fact is that this economy has been crushing it from all angles, including corporate earnings that are currently enjoying a string of year-over-year increases coming into the current earnings period.

Despite all the rosy and encouraging news, the market has been on pins and needles of late, and are concerned about the GOP fumbling the tax policy and the shrinking breadth of market winners and leaders.

According to Bespoke Research, last month’s biggest stock market winners were September’s biggest stock market winners (+4.7%) followed by companies that see the majority of revenue outside the United States (+4.3%).

There have been oversold winners, including the International Business Machines (IBM), but the days of Big Blue leading the stock market parade are long gone. Instead, it’s up to bellwether names, including Facebook (FB) and Apple (AAPL), to keep the pace. On that note, Facebook just posted its financial results:

• Revenue: $10.33 billion against estimate of $9.84 billion
• Earnings: $1.59 against consensus of $1.28
• DAU: 1.37 billion
• MAU: 2.07 billion
• Ad Revenue: $10.1 billion
• Ad from Mobile: 88%

Tesla (TSLA) is another high-profile name that reported after the bell on Wednesday, missing on the bottom line with a significantly larger loss than expected. Momentum names have become very volatile as shorts have begun to reload after a disastrous year.

Speaking of volatility; yesterday, the market rally hit two-speed bumps, both in the form of Washington, D.C. scuttlebutt on the tax plan.

• Fourth tax bracket 39.6%
• Tinkering with 401K plans

Today’s Session

It’s Tax Day or should I say Tax Relief Day as the GOP will roll out their initial plan to bring tax relief to the middle class and businesses.  There is enormous anxiety, although, the do-or-die atmosphere means something will get cobbled together. While it might not meet initial ambitions, it would be enough to make the market happy.

Media Reported Changes

• 20% permanent corporate tax
• 12% repatriation on cash assets
• 30% rate for pass-through businesses

Apparently, 401Ks are safe but SALT isn’t even as congressional Republicans from states that will be hit the hardest point out they are net givers of money to federal coffers, and therefore not subsidized by the rest of the country.  Since money is fungible, they are technically correct, but they have lost the messaging war.

Look for some rotation into blue-chip names as the market becomes a bit antsier and profits are registered at high flying tech names like Facebook, which blew away consensus, but it is looking under slight pressure this morning.

 

 

Comments

Would that we could get some true monetarists at the Fed and running the Fed, so they get what is happening to the velocity of money. It has been decimated and is still falling! Just look at V2. We need to purge the Keynesian's and believers in the Phillips Curve. The global central banks are making their interest rate increase for them because of the relative valuation of currencies against the dollar and each regions respective monetary policy. Only our government can increase velocity by changing fiscal (tax cuts, the right kind though...) and regulatory policy change. Although regulatory cuts have started it will take more to affect the whole system. At least the cuts and the hope of positive change has been the catalyst to ignite the market and consumer confidence. It has resulted in consumer spending and a renewal of business investment which has been virtually dead for years. It is just getting started! Raymond on 11/2/2017 10:10:24 AM

Charles I love your show...The reason a tax plan will not pass is simply Washington Swamp which includes Dem's & Republicans will not give President Trump a victory. The Swamp is more important than Reelection. Tom Rostock on 11/6/2017 7:20:13 PM

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