Daily Market Color

Bank Stocks Fall on Tax Reform Concerns

Tax Reform Weighs on Banks

US bank stocks lost ground for a fourth consecutive day as the expected implementation timeline for the completion of a tax bill continues to be pushed later.  The Senate is expected to announce its tax reform proposal tomorrow, and according to Senate Majority Leader Mitch McConnell, the bill will be revenue neutral and is not expected to cause a material difference to the federal deficit.  Contributing to future policy implementation uncertainty, Democrats seized victory in the Virginia and New Jersey gubernatorial elections held yesterday.  While the results were widely expected in New Jersey, the victory for Democratic Lieutenant Governor Ralph Northam in Virginia was less certain in a tight race against Republican Ed Gillespie.  Tweeting while on his current trip to Asia, President Trump downplayed the losses, stating “Ed Gillespie worked hard but did not embrace me or what I stand for.”



Major US stock indices finished modestly higher on the day, as a rise in tech stocks more than offset the decline in bank shares.  The tech-heavy Nasdaq posted a 0.3% gain while the DJIA (+0.05%) and S&P 500 (+0.15%) edged higher.  US Treasurys held within a tight range for a second straight trading session.  The 10-year note yield is currently up 1 basis point on the day to 2.33%.  The dollar fell 0.1% against major currencies, despite posting a 0.4% gain against the British pound, as British Prime Minister Theresa May continues to deal with political drama in her administration.  The most recent issue related to May being forced to recall her international development secretary from Africa, after learning of several unauthorized meetings with Israeli officials.  The news comes one week after the former UK Defense Secretary Michael Fallon resigned his post amid a sexual harassment scandal.



Crude Pullback

Crude oil prices retraced a portion of this week’s gains after the Energy Information Administration reported a surprise inventory build last week.  The EIA data showed crude stockpiles in the US rose by 2.2 million barrels (-2.4mm expected) to 457.1 million, partially offsetting the price momentum from the corruption turmoil in Saudi Arabia and yesterday’s API report of a drawdown in inventories.  WTI crude futures are down close to 1% on the day, albeit still near two-year highs, and are currently trading near $56.70/barrel.



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