The stock market took the news of a delay in corporate taxes pretty hard on Thursday. The initial reaction saw the Dow Jones Industrial Average plunge to a 253-point decline before finding its footing.  The selling was more of a reaction to confusion and a sense that the GOP could be on the verge of blowing it again.

These sorts of market reactions to news out of Washington, D.C. aren’t just knee-jerk whining, but it also serves as a warning to lawmakers to get their act together. Wall Street can live with the corporate tax cut coming one year later as long as it’s confirmed. However, Main Street isn’t going to be as happy as promised: 

• Seven Tax Brackets
• No State and Local Deductions

There is potentially good news in the Senate plan, including businesses to deduct all 2018 capital investments. Several economists think this provision could be the one that saves this bill and develop the U.S. economic growth above 3.0% annually. This may not have the same impact on Main Street as a corporate tax rate, which would have a magnificent multiplier effect.

Delaying the new corporate rate for a year buys the GOP $100 billion. The corporate tax revenue is the smallest source to the federal coffers, which is why tax bill writers in the Senate will cast their eyes on the honeypot of individual income taxes. 

Federal Revenue				2016	2017	2018	2019	2020	2018– 2022	2018– 2027
Revenues
Individual income taxes				1,546	1,574	1,724	1,833	1,933	9,661	22,032
Payroll taxes				1,115	1,164	1,195	1,235	1,270	6,383	14,041
Corporate income taxes				300	310	324	344	380	1,821	3,907
Other				307	267	289	275	269	1,397	3,036
				_____	_____	_____	_____	_____	_____	_____
Total				3,268	3,315	3,531	3,687	3,853	19,261	43,016
On-budget				2,458	2,466	2,658	2,783	2,921	14,594	32,807
Off-budget				810	849	873	903	932	4,668	10,209

 

The market will watch the rest of this saga with bated breath, hoping that the GOP gets its act together and refocuses on improving confidence and the underlying fundamentals of the economy. 

Yesterday’s session was swift with a lot of profit-taking in big technology names such as Alphabet/Google (GOOGL) and a big financial name like Goldman Sachs (GS). 

Interestingly, a lot of cash flowed into beaten-down sectors, including retail stocks. Macy’s (M) was the big winner after offering reassuring guidance, but Kohl’s (KSS) had a more impressive session after diving on its earnings release shares that turned higher into the close. It was consumer staples leading the way along with brick-and-mortar stores.

This kind of rotation underscores a challenge for the rally beyond D.C. shenanigans. Where does the rally find leadership if the big tech names pause and even pull back?  Earlier in the year, there was a shift into banks. The problem here is that banks moved away from their core business of lending as they live and die by trading activity. 

Another red flag for the session was the market breadth, which can be measured in several ways from winners and losers to volume and even milestones. On that note, this is the first session in a long time that saw more 52-week losers than winners:

• On the NYSE: 73 stocks hit new highs while 91 hit new lows
• On NASDAQ: 73 new 52-week highs overshadowed by 79 new 52-week losers
• After the close, Disney (DIS) posted a miss on revenue and earnings, sending its shares lower 
• News Corp (NWSA) posted results that beat the Street as every business segment enjoyed revenue and earnings before interest, tax, depreciation, and amortization (EBITDA) increases- management voiced optimism about its premium media businesses citing profound changes agreed by Google in the ranking of news content after almost a decade of campaigning by News Corp
• Nvidia (NVDA) crushed it with revenues that beat and earnings coming in $0.26 above consensus while management offered guidance for the current quarter above the Street as the stock was initially lower -this takes me back to my initial premise about tech facing a period of consolidation and pullbacks, but this stock is up 93% this year, and 1,200 since the start of 2014

When stocks with improving fundamentals pullback, I sit up and take notice, but it’s not the time to panic.

Today’s Session

Equity futures have come on strong all morning led by Disney, which laid an egg last night but promises of a new direct-to-consumer app to compete with Netflix turned the shares around big time.  NVidia shares reversed, but then again, its earnings were phenomenal.

One trend this week has been the rebound in stocks and industry written off and we will get some of that this morning with JC Penney (JCP) and Hertz (HTZ), which are higher on earnings beats.

Still, equity futures are in the red going into the opening bell and anxiety levels are higher than at the start of the week.

There will be a lot of promoting of the dueling tax plans in Washington, which give the GOP a chance at hinting at compromise on specific issues.  The clock is ticking.

Happy Veterans Day

Make sure to thank a veteran today and realize their sacrifice.   Interestingly, it would be nice if we started electing more of them to Congress to get things done. 

To those that served,

Thank You

Comments

Charles I'll start with you. Thank you for serving our country in the armed forces. Everyone of us are privileged to wake each morning into the best place in the world, USA, because of our militaries past and present part in the equation the greatest democratic Republic of all time. God bless you and all who serve. Andrew Carney on 11/10/2017 9:41:11 AM

Thank you very much Andrew...freedom isn't free. CP Charles Payne on 11/10/2017 9:43:03 AM

Charles: To echo the previous comments, from 1 Vet to another, Thank you for your continuing financial guidance. Tom H on 11/10/2017 11:07:54 AM

It seems soooo long ago, the swamp, the mosquitoes, the unending humidity along with the selfless acts of my fellow warriors in Vietnam...and yet, a day never passes when I don't thank God for sparing me when so many of my fellow combatants did NOT come home! They will forever live on in my heart along with the MANY men and women who willingly gave their time, their futures, their lives to serve the greatest democracy on Earth! We are SO lucky to live in the United States of America! May we NEVER forget the sacrifices of our service men and women who have and still DO keep us FREE, safe and forever grateful we have them to protect, defend and support us all. James A. Warlin on 11/10/2017 1:53:43 PM

We are indeed blessed. Thank you for your service. CP Charles Payne on 11/10/2017 1:59:27 PM

Charles...you are a great man. These jerks in D>C aren't worth a cockroaches A** !! Same here in PA...except for new ones in PA &DC Greedy, useless..I'm so TIRED of IT all!! HOW do you repay $20 Trillion FREEKIN" $$$ Keep at it !! Johnnyg 9th INF Mekong Delta 1969-1970 58,000 dead ..for what. REMEMBER THE ALAMO,WWI, WWII, KOREA (now theres another good one) CHOSIN, DANANG, KHE SHAN, HAMBURGER HILL< THE DELTA. & AFGANISTAN>>>16+ YRS ??!!!@# and on & on &on &on Thanks for what you and our GI's do...God bless us ALL..every one .... johnnyg on 11/10/2017 10:16:05 PM

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