Daily Market Color

Tax Reform Continues to Weigh on Financial Markets


US stocks and Treasurys finished the week lower as concerns over the implementation timeline for tax reform continue to remain in focus.  Next week, the bill from the House Ways and Means Committee is expected to be brought to the floor for a vote while the Senate Finance Committee plans to markup its proposal that was released yesterday.  One of the major hurdles for both plans is the requirement to be revenue neutral by the 10-year anniversary of the legislation, especially given that there is a projected $1.5 trillion addition to the nation’s debt in both the current proposals.  If unable to eliminate the $1.5 trillion deficit figure, the proposal would be subject to a 60-vote threshold, which is considered to be nearly unattainable for the GOP. 



Overall, small cap equities have fared the worst with the uncertainty over future tax policies, as delays to the expected cuts in corporate rates have forced a pullback from the gains in share prices posted in the first half of the year.  In the past two months, the small cap Russell 2000 index has declined more than 2% while the S& P 500 and DJIA continued to post new record highs.  During today’s trading session however, major indices were weighed down by the health care sector (-1%), where companies are struggling with news of Amazon’s planned venture into the industry.



US Treasurys similarly experienced a selloff today, with yields/swap rates up 2-7 bps across the curve in a bear steepening pattern.  The yield on the 10-year note rose above 2.40% for the first time in nearly two weeks, up 6 bps for the trading session.  In commodities, crude oil futures finished the session with a 0.5% decline, albeit the current $56.85/barrel level for WTI remains near the two and a half year high.



Good Morning, Vietnam!

Friday’s leg of President Trump’s trip to Asia featured a speech at the Asia Pacific Economic Cooperation CEO Summit in Da Nang, Vietnam.  Addressing business leaders from 21 different nations present at the forum, Trump reinforced the plan for the United States to avoid multilateral trade agreements that  “tie our hands” and lead to America be treated unfairly in international trade.  “We are not going to let the United States be taken advantage of anymore,” he stated, “I will make bilateral trade agreements with any Indo-Pacific nation that wants to be our partner and will abide by the principles of fair and reciprocal trade.”  Chinese President Xi Jinping echoed a much different tone in his speech to the group, as he promoted globalization and warned that “those who close down will inevitably lag behind.”


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