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IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Steigerwald, Gordon & Koch, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Steigerwald, Gordon & Koch, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Steigerwald, Gordon & Koch, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Steigerwald, Gordon & Koch, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request. Please Note: Steigerwald, Gordon & Koch, Inc. does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Steigerwald, Gordon & Koch, Inc.’s web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Tax Reforms Released as Earnings Season Continues

 
This week, President Trump released his vision of how corporate and personal taxes should be changed.  Following up on his campaign promise to give a “massive tax cut” to the American public, details include a 15% corporate tax rate, simplified tax brackets for individuals and protection of the mortgage interest deduction and doubling the standard deduction while removing the ability to deduct state and local taxes.  Obviously that would be a big boost to corporate earnings as more cash would flow to the bottom line and be available to be distributed to shareholders.  Small cap stocks that make most of their profits on domestic sales would benefit from lower taxes.  Large multinationals would also benefit if cash is able to be repatriated to the U.S. at a lower rate than currently.  Banks are one sector that would benefit from not only the lowered rate but also a likely boost in customer demand for loans.  Details on how to pay for all this are sketchy.  Dropping the corporate tax rate from 35% to 15% would cost about $2.5 trillion according to various studies.  The total price tag could be as high as $5.5 trillion, depending upon what ultimately survives Congressional debate.

The Trump administration claims economic growth alone could pay for the entire overhaul.  If the lowered tax levels spur companies and the general public to open their wallets and push GDP to 3%+ annual growth on a consistent basis, then maybe this explanation would work.  According to the Commerce Department, the first quarter gross domestic product grew at the slowest pace in three years, eking out 0.7% on a seasonally adjusted annual rate.  In the fourth quarter, GDP grew at a 2.1% rate and economists surveyed by The Wall Street Journal had expected 1% growth.  The biggest issue was sluggish consumer spending, which comprises about two-thirds of output.  Household growth grew by the smallest amount since 2009.  This is highlighting the growing conflict between “soft” data that measures consumer confidence and manufacturing surveys on current conditions and “hard” data which is showing that the economy is actually decelerating when figures are tallied.  Meanwhile, inflation has become more widespread with the S&P CoreLogic Case-Shiller data showing home prices in 20 U.S. cities accelerated for a fifth consecutive month, and the Fed is clearly on an interest rate hike path with the futures market pricing in a 70% chance of officials raising their benchmark rate when they meet in June.   

Granted, there are always seasonal factors at play.  An unusually warm winter has led to lower utility use and played havoc with retailer inventory—why buy a sweater in January when temperatures are in the low 60’s?  Quirks in the calendar means the government did not get the bulk of its income tax revenue until after April 18, three days behind the usual 15th.  In an $18 trillion economy, three days results in a lot of interest not collected!  This quarter’s GDP data also saw a 1.7% fall in government spending that was likely affected by a three-month hiring freeze imposed by the administration.  Most economists expect the economy to bounce back by the second and third quarter and finish the year at 2.2% growth with only a 15% current chance of a recession according to Bloomberg.  So the sky is not falling.  The Commerce Department reported sales of new home sales, a key industry and timely indicator, rose to the highest level since September 2008 even in the face of higher prices.  Nevertheless, to generate potentially a $5.5 trillion gap in the nation’s finances without a concrete plan to cover that debt could be very troubling to the financial markets.  The market’s reaction when the plan was revealed on Wednesday was not much mostly because it was devoid of many details.  Judging from the failure to repeal and replace the Affordable Care Act, investors are waiting until final votes are counted before casting their opinion through trading activity.       

 



INDEX
  • Tax Reforms Released as Earnings Season Continues
  • All Eyes On Europe as Earnings Season Kicks into Gear
  • Earnings Season Begins
  • Payrolls Affected by Storm
  • Steigerwald, Gordon & Koch Weekly Blog 3/31/2017
  • Markets Chug Along
  • No Surprise: Fed Raises Rates
  • Jobs Galore
  • Fed Governors Send Strong Signal March Rate Hike Likely
  • Fed's Next Move in Focus
  • Steigerwald, Gordon & Koch Weekly Blog 2/17/2017
  • Earnings Season Continues
  • SGK Weekly Blog 2/3/2017
  • Earnings Season in Full Swing as Dow Hits 20000
  • Earnings Get Off to a Solid Start as the Economy Continues to Chug Along
  • Earnings Season Begins
  • SGK Weekly Blog 1/6/2017
  • Markets Book Eighth Consecutive Year of Gains
  • SGK Weekly Blog Dec. 23, 2016 - Happy Holidays!!
  • Fed Raises Rates and Markets Shoot Higher
  • SGK Blog--Update November 23, 2016: Happy Thanksgiving from All of Us at SGK Wealth Advisors!!