Stock indices ended the week lower despite strong earnings and economic data. President Biden addressed members of both houses of Congress on his ambitious spending plans. Likely these will see many changes before anything passes Congress.
One question we had, is raising the corporate tax rate to pay for infrastructure a good idea? We compiled this graph of combined corporate tax rates from countries around the world. Despite the 2018 corporate tax cut the U.S. is above the average of these developed OECD countries and the proposed increase would move us closer to the highest corporate tax rates. We pay for higher corporate tax rates two ways. First, we pay through higher prices for goods and services. The second cost is through lost business to foreign competitors. While we think raising the corporate tax rate is not a good idea, we believe negotiating a minimum corporate tax rate amongst these countries makes sense.
Treasury yields rose with the 30-year bond yield closing at 2.301% and the 10-Year note closing at 1.629%. Crude oil rose to $63.49 a barrel and natural gas was rose to $2.935 per MMBTUs. The U.S. dollar index rose to 91.28 and gold fell to $1767.90 an ounce.
In the economic numbers this week:
- The Commerce Department reported:
- Durable goods orders increased 0.5% in the month of March from February. Core durable goods orders, excluding defense and aircraft rose 0.9%.
- Gross Domestic product grew at a 6.4% annual rate in the 1st quarter.
- Household income rose 21.1% in March on the heels of $1400 stimulus payments, the largest increase in government records going back to 1959.
- Spending rose 4.2% in March. Spending on goods rose 8.1%, led by big ticket items. Spending on services rose a more modest 2.2%.
- The personal savings rate rose to 27.6% in March from 13.9% in February.
- The price index for personal consumption expenditures rose 0.5% in March from 0.2% in February. Excluding volatile food and energy, prices rose 0.4% in March, up from 0.1% in February.
- The Japan central bank met and left monetary policy unchanged. They did slightly increase their growth forecast.
- The Federal Reserve met and upgraded its assessment of the economy. However, the FED pledged to keep interest rates near zero and to support the economy with $120BN a month in bond purchases until there is substantial further progress on employment and achieving sustained 2% inflation. Specifically, the FED statement said:
- “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.”
- “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.”
- The S&P CoreLogic Case-Shiller index of property values rose 12% in February from a year earlier up from 11.2% year over year in January.
- The Labor Department reported:
- A seasonally adjusted 553,000 workers filed initial claims for unemployment in the week ending April 24th down from a revised 566,000 the week before.
- The 4-week moving average, designed to smooth out volatility, fell to 611,750.
- Continuing claims were little changed at 3.7MM in the week ending April 17th.
- A broader measure of claims including extended benefits, pandemic assistance and other programs fell from 17.4MM to 16.6MM in the week ending April 10th.
- For the full unemployment report go here: https://www.dol.gov/ui/data.pdf .
- The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf . Also, the EIA reported in the prior week:
- Field production of crude oil fell from 11.0MM to 10.9MM BPD.
- Natural gas storage rose 15BN cubic feet and is about at the average level at this time of year during the past five years.
- Baker Hughes reported the number of active oil rigs fell 1 to 342. The number of active natural gas rigs rose 2 to 96.
- Factset reported with 60% of S&P500 companies reporting Q1 earnings, the blended earnings growth rate is 45.8%. If this continues, this may be the best quarter of earnings growth since Q3 2010.
Please call us if you have any questions.
Loren C. Rex, CFP®, MA Erik A Smith AIF®
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.