U.S. Stocks posted substantial gains this week as market participants focused on the progress of tax legislation through Congress as the House and Senate have both now passed tax bills. Now, a conference committee will try to iron out differences between the two bills before a final vote. We have scanned the actual 479 page bill (thank goodness for text searching capabilities). While some things are subject to change, what we understand at this point is both bills:
- Lower the corporate tax rate to 20% from 35%.
- Lower the tax rates for pass through entities such as S Corps and LLCs.
- Allow unlimited full expensing (as opposed to depreciation) of business capital expenditures until 2022.
- Lower personal tax rates for most individuals.
- Allow the deduction of up to $10,000 in property taxes but eliminate the deductions for state and local income taxes.
- Retain the deduction of mortgage interest (with limits on very large mortgages) and charitable deductions.
- Nearly double the standard deduction which will be larger than the potential itemized deductions for many people.
- Eliminate the personal exemption.
- Increase the refundable child tax credit.
- Retain pre-tax contributions to retirement accounts at current levels and current inflation adjustments.
- Double the estate tax exemption (at least temporarily).
Keep in mind that many of the personal tax changes have expiration dates. This was intended to keep the total cost of the tax cuts below 1.5TN over ten years. Otherwise the Senate bill would have required 60 votes. The non-partisan Joint Committee on Taxation estimated that about a third of the cost of the bill will be offset through higher growth. Therefore the bill may not entirely pay for itself. Down the road another party and or president can let the portions automatically expire or modify these changes at any time.
The Senate bill does require first-in first-out accounting for capital gains but this is not in the House bill. If you were thinking of selling a stock that you’ve owned over a year and have bought different shares at different times, you may want to consider selling the high cost shares this year as opposed to selling the longest owned shares after this year. Also, if you were thinking of donating a stock and you have lower cost basis shares that are not the oldest that you would like to donate, you may wish to do these this year.
Please contact us to discuss your objectives and strategies for year-end planning your investments. Contact your tax advisor for non-investment related questions.
Foreign stocks were generally down this week. Crude oil was down slightly for the week. It had dropped mid-week but recovered after OPEC and Russia agreed to extend production cuts through the end of 2018. The dollar gained slightly against a basket of currencies and the 10-year Treasury yield rose.
In the numbers, this week:
- HIS Markit reported that the Purchasing Managers Index for the eurozone increased to 57.5 in November from 56.0 in October. Anything over 50 represents expansion and these number show an acceleration of growth in the Eurozone.
- The S&P CoreLogic Case-Shiller Home Price Index was up 6.2% in September from a year earlier. August’s index was up 5.9%.
- The Caixin China manufacturing PMI fell from 51.2 in September to 50.9 in October.
- The Caixin China services PMI rose to 51.2 in October from
- Initial claims for unemployment in the prior week fell 2,000 to a seasonally adjusted 238,000. The four-week moving average of claims rose 2,250 to 242,250. The increase was attributed to a backlog of claims in Puerto Rico.
- The Commerce Department reported:
- Purchases of newly built single-family homes rose 6.2% in October. From a year earlier new-home sales were up 18.7%. Unlike last month when the 14.2% September gain was attributed to replacement of homes in the Huston area. This time the biggest gains came in the Northeast 30.2% and Midwest 17.9%.
- The nation’s gross domestic product in the 3rd quarter was revised up from 3.1% to 3.3%. The upward revision was attributed to increased business investment and government spending.
- Consumer spending rose 0.3% in October. This follows a 0.9% rise in September.
- Incomes rose 0.4% in October.
- The price index for personal consumption expenditures rose 0.1% in October. Excluding volatile food and energy prices rose 0.2%. From a year ago prices rose 1.6%. Excluding food and energy prices rose 1.4%. Given that this is the FEDs preferred measure of inflation it is safe to say inflation is running below the FED’s 2% target.
- The Energy Information Administration’s Weekly Petroleum Data report is here: wpsrsummary (12). In addition, the EIA reported:
- Weekly field production of crude oil rose 24 thousand barrels per day in the prior week.
- Natural gas in storage fell 33BNcf last week from the prior week.
- Baker Hughes reported that oil drilling rigs rose 2 to 749. Gas drilling rigs rose 4 to 180.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF®, MA Erik Smith
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.