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Last week was good for stock investors. The S&P 500 gained 0.7%, while the small cap Russell 2000 gained 2.8%. The top sectors on the week were energy, advancing 1.9%, and financials advancing 1.6%. Utilities lagged as they fell 0.4% while the U.S. Trade Weighted Dollar strengthened, gaining 1.0%.
How the Trump Tax Plan Could Impact Investment Performance
The Trump tax plan announced on September 27th, 2017 was presented as having four primary goals: simplifying the tax code to make it easier to understand, cut taxes in a way that effectively raises pay, make America a more attractive market to hire employees, and repatriate trillions of dollars back to the United States. While those broad objectives make it sound like the tax plan framework benefits just about everyone, the truth is that the tax cuts will likely impact people differently depending on a myriad of factors – income, state of residence, and business interests to name a few. Although the specific details of what the final tax changes may be (congress is tasked with figuring that part out) the framework provided this week does provide a blueprint.
Financials Continue to Lead
Financial stocks continue to build on their strong September gains. Chart 1 shows the Financial Sector SPDR (XLF) hitting a new record high. Rising interest rates are the main force driving money into banks, brokers, and insurers. The black line just above the price chart shows the XLF/SPX ratio turning up during September. The green line in the top box shows the 10-Year Treasury yield also rising during September. If you examine the two lines, you’ll see that they generally rise and fall together. Right now, they’re both rising together. The upturn in bond yields has also helped push small cap stocks into new record territory (see below). The upturn in bond yields is also contributing to a rotation into value stocks. Financials are the biggest part of the value group. A lot of the money moving into financials is coming out of big technology stocks. Rising rates also have something to do with that.
Disclaimer: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA Wealth Management, LLC. Please remember to contact STA Wealth Management, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. STA Wealth Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the STA Wealth Management, LLC’s current written disclosure statement discussing our advisory services and fees continues to remain available upon request.
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