Thursday, September 21, 2017

Here on the final day of summer on the 2017 calendar, and with Q3 earnings season now on the visible horizon, it offers us a chance to reflect on the past 3 months. This summer, marked as usual by lower trading volumes overall, held up remarkably well despite plenty of headwinds: turmoil between President Trump and North Korean Chairman Kim Jong-un, two major hurricanes hitting the continental U.S. and still no firm tax reform package emerging from Congress.

On this last point, the hope of lowering the corporate tax rate 15-20 points has been the markets’ main buoy this summer. Though we still haven’t seen anything more than a quick sketch of what tax reform would look like, current congressional moves such as repealing and replacing Obamacare in order to take a cool $1 trillion off the books to make the tax reform numbers work are steps toward this bigger goal. Though the Trump administration is behind its own schedule of healthcare reform passage, it is keeping its focus on this issue. Republicans in Congress have until September 30 to pass new healthcare legislation without needing help from Democrats.

Hurricanes Harvey and Irma cost precious life and took plenty of resources to fight. Cleanup crews are still working diligently in Southeast Texas and Florida to get these states and their regional economies back to functioning fully. Insofar as the worst projections about the storms, we seem to have come through both disasters with relatively low negative impact.

Even Initial Jobless Claims — which came out ahead of today’s bell, as they do every Thursday — did better than expected, factoring in employment loss from the two hurricanes. A tally of 259K new claims last week fell 23,000 from the previous (revised) read of 282K, which itself was a spike believed to have been directly related to the storms. Continuing claims inched up closer to 2 million at 1.98 million last week; we haven’t seen continuing claims over the 2 million mark all year long.

The Dow has grown steadily higher since September 11th at the start of last week. Over the summer as a whole the index impresses, marked by higher lows throughout the quarter, gaining more than 1000 points since June 22nd. The S&P 500, while enduring a late-August slump, rebounded nicely for most of September thus far, gaining nearly 74 points since summer began. And the Nasdaq, while taking a small downturn yesterday, survived a deep trough in mid-July before plateauing between 5800 and 6000 ever since (aside from one day peaking above 6000).

With the Federal Reserve now looking toward December as the next possible time it hikes interest rates, investors can rest easy the Fed will not disrupt this bull market — or disruption will be minimal, considering the Fed will be starting to unwind the $4.5 trillion currently on the balance sheet. This comes as a shock to no one paying attention, and thus should make the firming up of monetary policy occur without sending ripples of discomfort throughout domestic industries.

Mark Vickery
Senior Editor

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