Republicans have been salivating over corporate tax cuts and repatriation of the estimated $2.6 Trillion in cash on US company balance sheets overseas that can’t be brought home due to double taxation. Why would Apple repatriate any of its $252 Billion after-tax cash hoards, only to have $88 Billion confiscated by US taxes? Instead, US companies borrow here against their overseas cash elevating our cost of capital.
Until recently the stock market has not been pricing in any Trump legislative success in 2017. However, post-November earnings season, stocks are surging primarily in the hope of GOP unity providing a Christmas tax package for investors. Short term, the stock market is very overbought and could stall should the full Senate reject a tax vote. Conversely, equities will rocket higher in spite of the froth throughout December if the Senate approves tax cuts. Note that we are already testing our projected inflection point due December 1st after a test of the 2640’s in the S&P 500 Index.
During a runaway Bull market year such as 2017 with record low volatility (no meaningful correction), sentiment measures like put and call option buying extremes will generate less important Sell signals and fantastic high confidence Buy signals (the only Buy signal of 2017 was in mid-August). Yet optimistic Call buying tops marked by 10-day Put/Call ratios under 61%, still warn that the upside momentum is about to stall. The reading today 11/30/17 = 0.57.
The benchmark S&P 500 Index of stocks has garnered 19% gains for 2017. This marks the strongest return since 2013. To date, the 26% Trump rally the past 13 months has been earnings-based and emboldened with a record 17-year high Consumer Confidence levels. In spite of optimistic corporate guidance, 71% of companies are still beating consensus estimates this quarter. With the 3rd quarter earnings season fading away, the continued run to record highs into year end should be supported by very strong holiday consumer spending through Christmas and may get a bucket of kerosene on their fire of optimism should tax cuts become certain.
