October 2, 2017 – Weekly Market Commentary



 

Federal Reserve Logo

Binyamin Appelbaum – The New York Times
Janet Yellen Says Fed Plans to Keep Raising Rates

Summary: The Fed chairwoman said that the Fed plans to continue raising its benchmark rate despite weak inflation. The Fed has struggled to understand why inflation has not picked up momentum, but Yellen said that it would be imprudent to keep monetary policy on hold until inflation reaches the Fed’s 2% target. The next rate hike is expected to come in December. 

 

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Reuters Staff
U.S. Core Capital Goods Orders Rise More Than Expected

Summary: New orders for U.S.-made goods increased more than expected last month, indicating underlying strength in the economy. Core capital goods orders are a leading indicator of business spending. Strong August data raised the year over year increase in orders to 3.3%.

 

U.S. Capitol

Jeanne Sahadi – CNN Money 
Details of GOP Tax Reform Framework Revealed

Summary: Republicans presented a new tax reform framework which would decrease the number of individual tax brackets from 7 to 3, increase standard deduction and child tax credits, eliminate state and local tax deductions, kill the estate tax, and repeal the AMT. On the corporate side, the tax rate would be cut to 20%, small businesses and pass-throughs would see a rate decrease from 39.6% to 25%, and a “territorial system” would be introduced for multinational companies. 

 

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Patricia Laya – Bloomberg Markets
U.S. Second Quarter Growth Revised Upward to 3.1% Annual Pace

Summary: Second quarter GDP was revised higher due to a healthy contribution from business spending. An upwards trend in equipment spending and renewed optimism regarding tax reform bode well for continued business investment through the latter half of the year. 

 

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Libby Cantrill – PIMCO
Tax Reform: Challenges Ahead

Summary: Cantrill points out that many issues need to be resolved before investors can feel confident that tax reform will materialize in coming months. Proposals to eliminate many individual deductions are likely to cause headaches. Many deductions are considered sacrosanct by different constituencies who tend to be sympathetic to policymakers. Additionally, the 2018 fiscal budget must be passed before tax-reform can be seriously discussed. 

 

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Isabelle Mateos y Lago – BlackRock
The Market Implications of the German Election

Summary: German Chancellor Angela Merkel won her fourth term but must deal with coalition negotiations and a divided parliament. The election is unlikely to have a major effect on the financial markets over the short-term but it is a sign that euroscepticism sentiment is still making its mark in the bloc. A lack of support for pan-European initiatives will likely keep the ECB’s hands tied and likely lead to a continuation of accommodative policies which will support European equities. 

 

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Liz Ann Sonders, Jeffrey Kleintop, Brad Sorensen – Charles Schwab
Fourth Quarter Fun…or Folly?

Summary: The Schwab team remains “cautiously optimistic” that the market rally will continue into the fourth quarter. The next recession is unlikely to happen within the next year and economic indicators are still trending in the right direction. International markets are also likely to continue improving during Q4. The MSCI ACWI ex-US is nearing a new all-time high. If the index breaks through to new highs, momentum will likely carry global equities higher through the quarter. 

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