Market Update: Wednesday, April 26, 2017

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  • Markets quiet ahead of tax policy announcement; earnings wave continues. (10:14am ET) U.S. equities are in wait-and-see mode this morning as investors anticipate the Trump administration’s tax policy announcement while keeping an eye on earnings. After two days of firm gains for domestic indexes, markets are easing off the gas after yesterday’s session saw the Nasdaq (+0.7%) breach 6,000, and the S&P (+0.6%) and Dow (+1.1%) again notching solid advances. Materials (+1.6%) and energy (+0.9%) led the advance for the S&P, with defensive sectors utilities (-0.1%) and telecom (-0.3%) the only decliners. Overseas, Asian markets posted further gains as the Nikkei  (+1.1%) extended its longest rally so far this year and the Shanghai Composite (+0.1%) held ground. In Europe, the STOXX 600 (+0.2%) is has climbed into the green after utilities company earnings weighed it down earlier in the session. Meanwhile, interest rates are stable with the yield on the 10-year note at 2.33%, WTI crude oil ($49.14/barrel) is down almost one percent, and COMEX gold (-0.3%) is slightly lower to $1265/oz.

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  • Trump’s tax plan just the start of negotiations. As widely reported, the Trump tax plan will be released today at 1:30pm ET today by Treasury Secretary Mnuchin and National Economic Director Gary Cohn. The proposal will reportedly include a 15% corporate tax rate, a 10% rate on repatriated profits, and a 15% maximum rate for pass-through businesses. Notable by its omission will be the border adjustment tax, although something like it is still possible as a revenue raiser to help offset the lost revenue from the tax cuts or to potentially pay for some infrastructure spending. We would view today’s announcement as an opening to negotiations and still expect the final rate to settle between 20-25%, with 25% more likely, and for the horse trading in Congress to delay passage until year-end or into early 2018. That said, the apparent willingness by the administration to potentially add some to the deficit and make the cuts temporary (sunset after 10 years) make a deal more likely. Tax reform could boost S&P 500 corporate profits meaningfully, potentially by 5% or more beginning in 2018.
  • Nasdaq hits 6,000. Yesterday, the Nasdaq closed above 6,000 for the first time in history. Many are wondering if this means it is now in another bubble. There are two important things to consider though, which we will examine in closer detail on the LPL Research blog.

 

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • Bank of Japan (BOJ) Outlook Report & Monetary Policy Statement
  • BOJ Interest Rate Decision

Thursday

Friday

  • GDP (Q1)
  • UK: GDP (Q1)
  • Eurozone: CPI (Apr)

Saturday

  • EU Leaders Summit
  • China: Mfg. & Non-Mfg. PMI (Apr)

 

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