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Quadruple Witching, Tax Cut Talk, And End Of Year Rally

The markets pulled back yesterday with all of the major indexes closing modestly lower.

There wasn't any news per se' to send the market lower. Markets ebb and flow. And even the strongest bull markets don't go up every day. And yesterday was just one of those days.

Tax cuts are back on everyone's mind again though. Early in the morning, there was word that more progress was made on the reconciled tax cut bill. Corporate taxes were going to go from 35% down to 21% (up from the 20% that both the House and Senate had in each of their separate bills). But the Senate's original version didn't have those kicking in until 2019. So the compromise at 21%, but starting on Jan. 1, 2018, was a welcomed addition. They also incorporated limited deductions for SALT (State and Local Taxes), and capped real estate tax deductions at $750,000 from $1,000,000.

Although, later in the day, one Republican said he was against the bill if it didn't include an expansion of the child tax credit. And another Republican was wavering because of the same issue. Also, the lone Republican who voted against the original Senate bill is expected to still be a no vote on the final bill. So that suddenly puts the tally at 49. Clearly there's still kore work to do. But those in the know are still confident that a final bill will be on the President's desk by Christmas. They are expected to vote on it next week on Monday or Tuesday.

In other news, yesterday's Weekly Jobless Claims fell more than expected, shedding 11,000 new claims at 225,000 vs. views for 239K.

Retail Sales rose more than expected, gaining 0.8% vs. the consensus for 0.3%.

And the Import and Export Prices report showed that import prices were up 0.7%, in line with expectations, while export prices rose 0.5%, besting expectations for 0.3%. For perspective, both import and export prices are up 3.1% on a y/y basis.

Quadruple Witching is today (that's when index futures, index options, stock options, and stock futures expire), so there could be some volatility.

But outside of that ephemeral event, the market should quickly resume its uptrend as we head into the end of the year.

Best,

Kevin Matras

Executive Vice President, Zacks Investment Research

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