After stocks lost ground for the second week in a row, investors in the U.S. will be facing a shortened holiday trading week and a light economic and earnings calendar.
Economic highlights will come on Wednesday, with the final reading on consumer sentiment from the University of Michigan and the release of the minutes from the Federal Reserve’s latest meeting.
Major earnings releases will all come before the Thanksgiving holiday, with salesforce.com (CRM), Dollar Tree (DLTR), Campbell’s Soup (CPB), and Lowe’s (LOW) reporting on Tuesday, while Deere (DE) will report earnings before the market open on Wednesday.
This past week, retail earnings were the big story and Walmart (WMT) punctuated the action on Thursday when shares gained over 10% after a report that crushed expectations. The stock closed Thursday’s trading at a record high and gave back over 2% on Friday, weighing on the Dow which lagged the major indexes to close out the week.
Tax reform also made some progress this week, as the House passed its version of a tax plan with the Senate set to take up revising the bill after the Thanksgiving holiday.
This week, markets in the U.S. will be closed on Thursday in observation of Thanksgiving and will re-open for just a half-day on Friday in what should be some of the lightest-volume trading of the year.
And as Keith Bliss of Cuttone & Co. noted on Yahoo Finance’s Midday Movers program on Friday, after next week there are really just four full trading weeks left this year, as Christmas falling on a Monday will see trading desks become veritable ghost towns the rest of that week.
So while investors will come into the holiday-shortened week with stocks coming off a so-so two-week period, 2017 is still shaping up to be one of the best years since the financial crisis with the Dow up over 18% this year, the S&P 500 up 15%, and the Nasdaq up over 24%. And don’t forget that December is traditionally one of the strongest months of the year for stocks.
Monday: Leading index of economic indicators, October (+0.6% expected; -0.2% previously)
Tuesday: Existing home sales, October (+0.2% expected; +0.7% previously)
Wednesday: Initial jobless claims (240,000 expected; 249,000 previously); Durable goods orders, October (+0.4% expected; +2% previously); University of Michigan consumer sentiment, November (98 expected; 97.8 previously); FOMC meeting minutes
Thursday: Markets closed for Thanksgiving.
Friday: Markit flash U.S. manufacturing PMI, November (55 expected; 54.6 previously); Markit flash U.S. non-manufacturing PMI, November (55.5 expected; 55.3 previously)
What corporate America will do with a tax cut
On Wednesday, President Donald Trump’s chief economic advisor Gary Cohn was stuck in an awkward spot.
During a meeting of the Wall Street Journal’s CEO council, executives in the room had a lukewarm reaction when asked to give a show of hands on how many planned to use money saved from tax cuts to increase investment and raise wages.
Neil Dutta, an economist at Renaissance Macro, noted in an email on Thursday that this informal show of hands might be a bit incomplete. Dutta pointed us to the Atlanta Fed’s latest business inflation expectations survey, which in November asked business leaders to give an estimate of what their most likely actions would be if tax reform were passed in the bill’s current form.
Sixty-percent of executives said they’d make no changes to their hiring plans, while 46% said they’d make no changes to their investment plans. Forty-percent of respondents said they’d expect to somewhat increase investments under the current plan with 11% saying they plan a significant increase in investment if tax reform goes through. On the hiring side, 31% will increase hiring somewhat and 8% expect to significantly ramp hiring.
So while these numbers still indicate that a plurality of business leaders the Atlanta Fed spoke to expect to make no changes to investment plans and the majority see hiring plans remaining intact, the notion that tax reform will have a minimal impact on the business community is perhaps slightly overstated. (The White House’s argument that this plan will lead to $4,000 of additional income that would “trickle down” from corporate balance sheets to worker pay is likely motivating arguments to overstate the ineffectiveness of lower corporate tax rates.)
As we noted last week, corporate America is maintaining a cautious optimism about what tax reform could bring to the economy and to their plans going forward.
“Tax reform or, simply, tax cuts have a higher chance of passage than major healthcare reform did or does,” said executives from Ventas (VTR), a real estate investment trust with a market cap near $23 billion. “While the specific outcomes of tax reform are too early to call, we are ready to optimize our opportunities as soon as the final framework emerges.”
Executives at Hilton (HLT) said they are “much more optimistic” now than they were last quarter on something getting done on taxes, adding that a main impact of lower taxes is “psychology, which matters and that is the business community and others feeling better about where the economy is going.” The company added that this could get positive impacts flowing into the economy fairly quickly.
Corporate optimism around this tax plan, however, ought not to be all that surprising. After all, corporations and wealthy individuals are the clear winners under both the House and Senate plans, while low-earning Americans would see initial relief sunset early next decade.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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