Weekly Market Update: November 13, 2017
Lessons From Last Week
The low level of weekly applications for unemployment benefits (jobless claims) is unambiguously positive. Anything below 240,000 weekly is respectable. Jobless claims appear to be settling into a new lower range, as hurricane disruptions are passing. Claims averaged 244,000 weekly in 2017 until hurricane season; since early October, they have averaged 230,000 weekly. The trend in claims outside the areas affected by storms and fires has downshifted by about 10,000 weekly.
The House and the Senate aim to pass tax reform bills by Thanksgiving, passing the baton to a “Conference” of members from both houses to hammer out a compromise. The hurdle for passage is highest in the Senate, where Republicans hold only a slim majority. Key features include: Both bills lower the corporate tax rate from 35 percent to 20 percent (the Senate bill phases the rate in by 2019); both bills raise the estate tax exemption to $11 million (the House version repeals it entirely by 2025); the bills differ on the state property tax deduction (the House bill caps the deduction at $10,000 and the Senate bill eliminates it); the House bill treats a portion of net income earned by sole proprietorships as business income and subject to a maximum rate of 25 percent; both bills treat profits accumulated abroad under the old system as repatriated and subject to a relatively low rate, lower for funds held in illiquid assets; the bills contain a number of measures to shift the US corporate tax system to a territorial system found in most countries (a territorial tax system wouldn’t tax the profits US multinational companies earn abroad since they are already taxed by foreign governments); both bills partially limit the deduction for business net interest expenses; the House bill allows 100 percent expensing of new investment (bonus depreciation currently is 50 percent and that phases down in 2018 and 2019); finally, the bills differ on the number of individual tax brackets and the top rate.
The President’s trip to Asia eased some trade tension worries.
What to Expect This Week
This week we're watching the CPI, retail sales, industrial production and housing starts. Jobless claims call the shots, as always.
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