Perspectives

Corporate Tax Reform Worked Revenue is surging, exceeding what CBO and critics predicted By The WSJ Editorial Board April 19, 2022 Democrats are still looking to raise $1.6 trillion in new taxes this year, and even Joe Manchin says he’d support a corporate tax increase. The West Virginia Senator might reconsider if he looks at the actual revenue results of the 2017 tax reform that cut corporate tax rates. Reform has been a winner for the economy and federal tax coffers. Remember the claim… View More

U.S. equities were lower last week, with the S&P 500 down 2.1%. (Small-cap stocks were modestly higher.) Some bullish talking points didn’t get much market traction, including peak inflation, better supply chain trends, and consumer resilience. These positions were overshadowed by fear around inflation, supply chains, and geopolitics. Best performing sectors (and the only ones positive) were materials (+0.7%), industrials (+0.4%), energy (+0.3%), and consumer staples (+0.2%); worst perform… View More

When interest rates go up, many analysts start to worry about recessions. That's not wrong to do, after all Federal Reserve rate cycles are important. Lately, the market has settled on expectations for a total of about 2.25% or more of interest rate hikes this year. The result is a jump in many longer-term yields. The 10-year Treasury yield is 2.77%, while the typical 30-year mortgage has climbed from 3.2% in December, according to Bankrate.com, to 5.1% recently. So, some analysts think that a … View More

The S&P suffered its first quarterly decline since the depths of the pandemic in Q1 of 2020 (-5.0%). Growth (-8.6%) meaningfully lagged value (-0.6%). The biggest development in Q1 was the dramatic repricing of the Fed rate hike path and expectations for an earlier start to and more aggressive balance sheet runoff phase. Late in the quarter, markets priced in a ~80% probability of a 50bp rate hike in May and ~200 bp in cumulative hikes by the end of 2022 following the 25 bp liftoff at the Ma… View More

Stocks finished higher again last week (S&P 500 +1.8%). The biggest story discussed was the hawkish Fed policy shift (lots of discussion around 50bp Fed hikes), pushing bonds lower and stocks higher. Earnings discussions were generally upbeat. Best sectors were energy (+7.4%) and materials (+4.1%); worst sectors were healthcare (-0.2%) and REITs (+0.4%). SOME PERSPECTIVE ON FOSSIL FUELS With the standard of living we enjoy in the U.S., it may be difficult to imagine that there are currentl… View More

Rumors of War Negotiations, Lower Oil Prices, and Predictable Fed Lift Stocks U.S. stocks had their best week since November 2020, with the S&P 500 +6.2%. Oil fell for the second week in a row. The themes cited included oversold conditions, depressed sentiment, cooling commodities, overstated recession fears, and China’s statements about market support. The best sectors were consumer discretionary (+9.3%), technology (+7.9%), and financials (+7.1%); the only sector closing down was energy… View More

For econometricians and other expensive experts, it remained a mystery why a quintupling of the assets on the Fed's balance sheet between 2008 and 2014 led to ever greater securities prices and no appreciable increase in the prices of goods and services. In a classic case of a remedy being the hair of the dog that bit you, the solution for many central bankers was to double down on policies that did not work as intended. Other central banks, like the Bank of Japan, went a step further by adoptin… View More

As expected, the Federal Reserve raised short-term rates by one quarter of a percentage point (25 basis points) earlier today, the first rate hike since the end of 2018. Even more important, the Fed signaled a new level of hawkishness in terms of future rate hikes as well as Quantitative Tightening. The "dot plot," which show the pace of rate hikes anticipated by policymakers, suggests the median Fed official thinks short-term rates will go up 1.75 percentage points this year, which would be co… View More

Higher interest rates plus higher commodity prices (energy + metals + food) indicate that we are likely headed for a period of below-trend economic growth. Central banks seem intent on moving to a more neutral policy setting (against the backdrop of continued global supply shocks). The ECB may delay rate hikes, but is looking to accelerate the end of asset purchases. In the U.S., the CPI surged +0.8% month over month and 7.9% year over year in February. The core (ex food & energy) CPI rose… View More

Price Of Oil Most Stretched Since 1990 It’s no secret that the price of oil has skyrocketed over the last week and now stands at roughly 60% above its 200-day moving average. This is the most stretched it has been since the 1990 oil price shock when Iraq invaded Kuwait. During that period, the price of oil more than doubled in 3 months and stayed elevated for nearly six months. 1990 Saw A 20% Correction & A U.S. Recession During the 1990 oil shock, the S&P 500 corrected 20% and th… View More