Government debt sales are set to more than double in 2018, lifting net issuance to $1.3 trillion, the most since 2010, according to JPMorgan Chase & Co. estimates. With the Federal Reserve shrinking its bond holdings and deficits poised to swell even before considering the tax overhaul, all signs point to higher financing costs.
The global stock market is just a few days from entering the history books, largely thanks to the constantly priced in tax reform. As SocGen calculates, and barring any end of year sell-off, the MSCI World index is set to record it first ever year of posting a positive total return in every single month and will hit a remarkable sequence of 14 months of positive returns.
And, as we noted in our morning wrap note, spurring the US on has been the prospect of the much-promised tax cuts, with US corporation tax set to be cut to 21% from its current headline rate of 35%. Mechanically this would imply a significant boost for US EPS numbers were it not for the fact that actual tax rates are significantly lower. Top-down numbers, compiled using actual tax revenue from the BEA national accounts, suggests that the effective paid tax rate is already at 21%, and this is like SocGen’s own bottom-up calculations using cash tax paid from report and account cash flow statements. SocGen’s Andrew Lapthorne wrote, “Yes, tax rates from the P&L are higher, but not much higher at 25%, implying a 4% boost to net income once the reforms are passed. So positive, yes, but not dramatically so.”
S&P 500 +22.09% YTD
The S&P 500 gained 0.30% last week in quiet holiday trading.
Russell 2000 +15.14% YTD
The Russell 2000 rose 0.84% for the week.
MSCI EAFE +23.77% YTD
International developed stocks gained 1.24% for the week.
MSCI Emerging Markets +34.19% YTD
The Emerging Markets rallied 2.07% for the week.
BARCLAYS AGGREGATE BOND Index +3.08%
Barclays Aggregate Bond Bonds fell 0.64% as the 10-year treasury yield rose to 2.49%.
Barclays High Yield Bond +5.84%
High yield bonds retreated 0.42% in the week and continued to diverge from equity market performance.
Disclosure: Investment Advisery services offered through Lake Point Wealth Management, LLC, an SEC Registered Investment Advisery firm. Insurance services offered through Lake Point Advisory Group, LLC. Lake Point Wealth Management is an SEC Registered Investment Adviser. It is important that you do not use e-mail to request, authorize or effect the purchase or sale of any security or to effect any other transactions The information transmitted herein and any attachments or files transmitted herewith may contain proprietary, confidential and/or protected, non-public information, are covered by applicable state and federal laws and are intended solely for the use of the individual or entity named above as the intended recipient. If the reader of this message is not the above-named intended recipient, or his/her/its agent, be advised that any review, disclosure, dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify the sender by telephone or e-mail and destroy the material forwarded in error. Nothing in this communication shall constitute an offer to sell or solicit any offer to buy a security or any insurance product. Recipients should be aware that all emails exchanged with the sender may be archived and may be accessed at any time by duly authorized persons and may be produced to other parties, including public authorities, in compliance with applicable laws.