What is the possibility of a market correction? What can we expect from tax reform? And, what does the Dow Jones Industrial Average reaching 22,000 really mean for health of corporate America? Get the answers to these questions and much more in this week’s edition of the Steady Investor’s Week…
On to Tax Reform – in a dramatic finish to what was a roller coaster of votes and drama surrounding the health care bill, it is now all but dead. Three Republicans voted against the last second Senate measure that would have repealed a medical device tax and removed the individual and employer insurance mandates. As it stands, the Affordable Care Act is the law of the land, and without some form of Congressional overhaul, it is likely to encounter mounting problems going forward, with insurance companies leaving exchanges and premiums on the rise for middle-income families. Eventually, Congress will have to do something. For now, it is on to tax reform, which stands to be just as tricky as health care. Republicans tend to have more refined views on the tax code versus healthcare, but that could also be part of the problem – many factions of the party want different outcomes with tax reform, and business pressures will be fierce. Eliminating loopholes in some cases could mean eliminating a business’s entire tax strategy. Nevertheless, expectations are for legislation to move quickly through Congress this fall, with the bill expected to advance through the House in October and the Senate in November. One bright note already, at least from an economist’s standpoint, is that Republicans have seemingly abandoned the idea of a “border adjustment” tax as part of the broader strategy, which could have set off trade wars and been a field day of unintended consequences.
Tilting to Europe – Europe continues to make positive strides in growth, and with relative valuations more attractive than here in the U.S., it has become a viable investment option for investors seeking international diversification. GDP growth in Europe expanded 0.6% in Q2 after increasing 0.5% in Q1, which marks 17 consecutive quarters of growth. Unemployment also dropped to a nine-year low of 9.1%. All eyes now are on the European Central Bank, to monitor whether they show signs of paring back accommodative monetary policy.
Trade Tensions with China – tensions are rising with China, on the heels of President Trump’s hard line on their handling of the North Korea problem. The Trump Administration is now considering its first major trade action against Beijing, with officials formulating a response to what they say are serious Chinese violations of American intellectual property. Such a move would bypass statutes outlined in the World Trade Organization, by invoking a provision of U.S. trade law known as “Section 301,” which allows U.S. presidents to impose duties on foreign products in retaliation for unfair trade practices. A trade war with China is a slippery slope that could impact many U.S. corporations.
Forget about Dow at 22,000 – all over the news you’re hearing reports of the Dow Jones Industrial Average at 22,000. Ignore them. Focusing on an arbitrary price level gets people thinking about tops and setting landmarks for where they think the Dow might go. The reality is that the Dow is a flawed index – it is price-weighted versus the S&P 500 which is cap-weighted. So, in the case of the Dow topping 22,000, it was really just a matter of Boeing and Apple performing well enough of late to get it there. It doesn’t give a good barometer for the overall health of corporate America, and it’s just a number. Focus on the fundamentals.
If you are looking for additional news and insights into the market, we urge you to read our just-released Market Strategy report. This report dives into factors surrounding the second longest bull market, and the possibility that it could lose steam soon. It provides readers with early warning signs that the end is approaching, as well as, a head’s up on two sectors that historically fall back and three sectors that perform well in a late cycle environment. Don’t miss this exclusive inside look, download your copy today by clicking on the link below. And if you have any questions or would like to learn more about how Zacks can help you with your investments, call us today at 1-888-600-2783.