(MENAFN- ValueWalk)
With the FOMC decision behind us and a moderate data calendar, the financial world will be focused on Washington. Expect people to be asking:
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Has the time come for tax reform?
Last Week Recap
My was partly correct. The focus was certainly on the Fed, but the market reacted quite calmly.
The Story in One Chart
I always start my personal review of the week by looking at this via Jill Mislinski. There was little change on the week, and little change during the week. The range was only 50 bps even during the Wednesday Fed announcement.
Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read the entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.
Personal Note
My plans changed, so I was able to write today. I'll get a weekend off soon!
The Silver Bullet
As I indicated recently I am moving the Silver Bullet award to a standalone feature, rather than an item in WTWA. I hope that readers and past winners, , will help me in giving special recognition to those who help to keep data honest. As always, nominations are welcome!
The News
Each week I break down events into good and bad. For our purposes, 'good' has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!
The economic news remained quite positive.
The Good
- Fed decision led to little market reaction. I am scoring this as 'good' because no one expected a statement that was friendly for stocks. The actual announcement was a bit more hawkish than most expected, but the market reaction was muted. Perhaps the Fed obsession will take a back seat and we can focus on earnings. Scott Grannis calls the decision '.' is a bit less sanguine.
- Corporate earnings outlook is even better. that 'a record number of S & P companies have issued positive revenue guidance for Q3'. Information Technology, Health Care, and Consumer Discretionary have been especially strong.
- Leading indicators increased 0.4% up from 0.3% in July. ().
- Trucking continues to improve. Steven Hansen () explains why we should emphasize the CASS index and notes that the improvement remains 'moderate.'
- Jobless claims had a surprising decline in the face of hurricane effects. Will it continue? and one of their great charts.
- Housing starts and building permits beat expectations. that we have not yet seen the hurricane effect.
on permits:
The Bad
- Existing home sales declined 1.7% in August. is not very concerned, citing low inventory. He does note that hurricane effects are still to come.
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Escalation in the war of words with 'Rocket Man,' 'dotard,' and aggressive threats. A key to the story is the situation of South Korea. has a great background article by Kathy Moon, a Senior Fellow and Professor at Wellesley.
For the United States, a nuclear armed North Korea undercuts its security and traditional policy objectives, such as nonproliferation, and destabilizes the East Asia region. But for South Korea, it is an existential threat. Given the high tensions of late, Seoul fears being dragged into a war or, at the very least, falling victim to limited military exchanges between Washington and Pyongyang.
- Rail traffic declined. This is especially true when using 'intuitive sectors' which remove coal and grain from the analysis.
- Builder confidence decreased to 64 from a revised 67 in August. that this is 'a solid reading.' were also down 9.7% from the week before.
- Mortgage delinquencies are 0.7% higher. This is especially true in the hurricane-affected areas. ()
The Ugly
Earthquakes in , – Mother Nature keeps bringing new challenges. The cooperation of people in the affected areas, and the tireless work to find and help survivors, is an inspiration. Meanwhile, the advanced technology helps to find the important affected areas.
Noteworthy
It is often a challenge to imagine ordinary life around the world, even if you are a frequent traveler. Sometimes the comparative price of a commonly purchased item is helpful. at the iPhone X.
The Week Ahead
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.
The Calendar
We have a normal economic calendar. Most important are personal income and spending. New home sales and the consumer confidence data will be interesting. There are plenty of Fed participants on the rubber chicken circuit. The GOP tax proposal will take center stage.
has a good U.S. economic calendar for the week (and many other good features which I monitor each day). Here are the main U.S. releases.
Next Week's Theme
Much of the attention to Congressional action this year has been a waiting game. The key market issues relate to trade, tax reform, and infrastructure spending. These are now coming to the fore. If the GOP is to pass legislation with a simple majority in the Senate, it must be done as part of the 'reconciliation' process. That opportunity ends this week.
Breaking news suggests that the 'Big Six' group of Republicans has reached agreement on a proposal. This will have everyone wondering:
Is it time for tax reform?
The expected tax benefits for top-bracket individuals and large corporations. There are also some breaks for the middle class and elements of simplification. President Trump is expected to announce the outline on Wednesday.
The key viewpoints will be clearer after details are known, but here is the general outline:
Support from those seeking tax relief for top brackets and business, which they view as economic stimulus; Opposition from the deficit hawks, who will not see this as revenue neutral; Opposition from some businesses, who will perceive a competitive disadvantage; Opposition from Democrats, who will argue that it tilts toward high-income taxpayers. The time frame does not permit much time for specific coalitions to form. As usual, I'll have more in the Final Thought, where I always emphasize my own conclusions.
Quant Corner
We follow some regular featured sources and the best other quant news from the week.
Risk Analysis
I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.
The Indicator Snapshot
Notes on changes:
We have added a distinction between the technical appeal of the market on a short-term (two months or so) and a
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