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Weekly Market Update for November 3, 2017

by JM Hanley

The Dow was up on Friday, rising 23 points to close at 23,539. For the week, the Dow rose 0.45% (S&P 500 +0.26%) and year-to-date is now up 19.11% (S&P 500 +15.6%). Large tech companies continued to report strong earnings, and energy companies benefitted as the price of oil moved higher. The yield on the 10-year Treasury fell ten basis points this week, closing at 2.33%.

Republican leaders in the House of Representatives released their tax reform legislation on Thursday. The bill largely conforms to the framework Congressional leaders laid out last month. The corporate tax rate is to be permanently cut from 35% to 20%. Firms with cash overseas could bring it home at a one-time rate of 12%. Individually-owned businesses, which currently pay personal income rates, would see their taxes reduced to 25%. Individual income tax brackets would be reduced to four, while the standard deduction and the child tax credit would both increase. The estate tax would be eliminated beginning in 2024.

The revenue lost is to be made up by eliminating or reducing a number of special deductions. Filers would no longer be able to deduct state and local taxes on their federal return. Additionally, homeowners with mortgages over $500,000 would no longer be able to claim interest expense on the loan (previously, this limit had been set at one million). Larger university endowments would be subject to an excise tax. However, contrary to some earlier reports, the bill does not change amount that one can contribute to a 401(k).

The legislation will change in the coming weeks since Senate leaders are writing separate legislation, which would need to be reconciled with the House version. As the legislation is now written, all domestic firms would benefit from the lower corporate rate. Other winners include firms with lots of cash held overseas.

Elsewhere in the capital, the President appointed Jerome Powell to succeed Janet Yellen as chair of the Federal Reserve. Powell, a current Fed governor, is considered a safe choice who will maintain a gradual pace in raising interest rates and reducing the Fed’s holdings of US government debt. In other news, the economy added 261,000 jobs in October. This was a bit weaker than economists’ expectations. Unemployment fell to 4.1% – a sixteen-year low.

The price of crude oil rose 3% this week to over $55 a barrel – up 4% YTD. US crude stockpiles showed a larger-than-expected draw. Saudi Arabia raised official selling prices for barrels exported to Asia for the third consecutive month; this is another indicator that suggests the excess inventory in the Atlantic Basin is normalizing.

Third quarter earnings report continued. In Ulland portfolios, Apple, Alibaba and reported strong revenue growth and expanded profit margins, although Stamps fell because the estimate of future sales was not increased. Priceline, L Brands, and Callon Petroleum, among others, will report next week.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients are strongly urged to consult with their tax advisors regarding any potential investment. Past performance does not guarantee future results; there is always a possibility of loss


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