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Friday, October 20, 2017

Late Thursday — while the Chicago Cubs were busy giving up the MLB crown to the LA Dodgers — a major cog in the tax reform wheel was secured by the U.S. Congress, which set a blueprint for its budget which would allow for $1.5 trillion to be put on the books. This is a clear sign that Congress is OK’ing a giant tax cut for corporations (and perhaps high-income individuals), and this has made the pre-market this Friday plenty happy: the Dow, Nasdaq and S&P 500 futures are all up at this hour.

While there remains some hope for bipartisan support on a tax reform deal, the vote was 51 to 49 (Rand Paul of Kentucky being the one Republican voting against the measure), indicating very slight margin for error. So while it remains the case that for a tax reform bill to be passed Democrats need not apply, what the GOP must guard against are those Republican renegades who may step out from under President Trump’s leadership in pushing forward his relished tax cut. Currently, the GOP cannot afford the loss of more than one additional vote against a tax reform bill.

Yellen to Vice Chair?

In other news, President Trump remains actively in pursuit of a new Fed Chair (furthering his pursuit to erase all accomplishments of his predecessor). Jerome Powell, a Fed President who has had the strongest odds to replace current Chair Janet Yellen since all the way back to earlier this month (when fellow Fed Governor Kevin Warsh was considered the front-runner), now appears to have competition from Stanford University economics professor John Taylor, in what some have said would amount to a classic “Trumpian surprise.” In any case, it would look as if Yellen would take a seat further down the table, with her interest in helping keep the U.S. economy on a strong track.

GE’s Q3 Fail

Ahead of today’s opening bell, General Electric (GE - Free Report) not only posted a big negative surprise for its Q3 earnings — 29 cents per share, as opposed to the Zacks Consensus of the (already lowered) 49 cents — but it lowered guidance for full-year 2017 from $1.53 per share to a range of $1.05-1.10. Revenues in the quarter did actually outperform the $31.9 billion expected, reporting $33.5 billion, but recently installed CEO John Flannery clearly has his work cut out for him.

In some ways, this Zacks Rank #5 (Strong Sell) company with a Zacks Style Score of F may represent a clear break from the previous reins of former CEO Jeff Immelt. Re-focusing where GE is and where it needs to be looks to have been addressed with this earnings call; if we are indeed seeing a bottom in GE stock here — down 8% upon this call and down 25% year-to-date (in a classic bull-market with the Dow at record highs) — then perhaps some radical shifts to right this ship of a long-time U.S. staple will be underway. Not that things would be easy, but CEO Flannery coming clean with GE’s current reality would seem to be a good first step.

Mark Vickery
Senior Editor

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