Equities

(Washington)

Hiding in plain sight is probably the best way to describe it. The new Republican tax plan has a major tax hike for stock investors that has largely gone unnoticed to this point. The tax plan contains a new provision that would do away with the status quo of letting investors choose which shares to sell off first as part of unloading a holding, and instead force investors to sell the oldest shares first. Many fund managers say the change could cost investors millions. The CEO of Eaton Vance summed up the changes this way, saying that if they become law, “markets will work less well. Our fund managers will have their hands tied, and our shareholders will owe more in taxes”.


FINSUM: This is a major change that has not been covered at all by the financial media. It will not only raise tax payouts, but it also constrains financial freedom. Bad policy.

(New York)
The market is keeping a very close eye on one particular asset class and with good reason. Junk bonds are coming under a nervous eye from investors as they could portend a big move in rates or a fall in stocks. Junk bond ETFs have just fallen to a seven-month low following a slide this week. High yield ETFs have been experiencing losses and outflows and yesterday fell alongside stocks. Junk bond issuers have been seeing lackluster earnings, which has weighed on the sector. Speaking on the junk market, one prominent junk bond trader said “There has been a real lack of willingness of investors to hold on to securities after an earnings miss . . . and it is more pronounced in the last week than it has been in quite some time”.


FINSUM:Junk bonds seem like they might be moving ahead of stocks, so could signal a fall to come. That is exactly why investors are watching the high yield market so closely.

(Washington)

The market fell in a big way yesterday, at least for 2017. The Dow fell over 100 points and the S&P 500 was off 0.8%. The catalyst? It was worries over what appears to be a faltering tax package. The big problem is that the Senate’s tax plans contrast sharply with the House’s, showing just how far Congress and the Republican party need to go to get a package passed. According to the WSJ, the two plans differ in ways including “the timing of a corporate tax-rate cut, the number of individual tax brackets, the details of international tax rules, and the particulars of estate-tax changes”.


FINSUM: We always thought it would take a lot of time and work to get a new tax package through. However, we do not believe that if Congress fails to do so it will have big impacts on the market. We think investors are incredulous of the prospect for a big tax package and that it has not been priced into this market.

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