Vorisek Financial Weekly Market Update for May 2, 2018

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Good morning!

The Trump White House believes the “Tax Cuts and Jobs Act” legislation, signed by the president on 12/22/17, will create +3% annual economic growth in the USA, a level last achieved in 2005.  The last time Congress passed a major tax reform bill before 2017’s legislation was in October 1986.  In the 3 years following that tax bill (1987-88-89), the US economy grew by a robust +3.8% per year.  During President Trump’s first year in the White House, the economy grew by just +2.3% but did reach $20 trillion in size as of 3/31/18 (source: Commerce Department).          

A 3% yield on the 10-year Treasury note and $3 gasoline at the pump represents rising inflation in the United States.  The 3% yield benchmark, reached last week for the first time since January 2014, suggests investors are resigned to multiple rate hikes by the Fed in 2018-19.  $3 a gallon gasoline, last seen 3 ½ years ago (on 10/31/14) and just 19 cents away from gasoline’s current average of $2.81, is largely driven by the price of crude oil.  Since the end of 2017, crude oil prices have increased +13% (+$7.98) to $68.10 a barrel.  Ironically, oil prices are going up even as American oil producers hit a record level of exports (10.5 million barrels a day) in April 2018 (source: Department of Energy).      

The US has implemented a 10% tariff on imports of aluminum from select countries, the main target being China.  The unintended consequence of a higher aluminum cost could be the negative impact on those American industries that use aluminum in the products they manufacture domestically but export globally, e.g., the auto and aircraft industries (source: BTN Research).    

Notable Numbers for the Week:

  1. ONE DAY - Of the top 50 “percentage gain days” for the S&P 500 over the last 10 years (2008-2017), only 1 has occurred in the last 6 years (2012-2017) (source: BTN Research). 

  2. NICE PLACE - In the years 2010-16 following the global real estate crisis, 46% of the new homes built in the United States had at least 4 bedrooms (source: Federal Reserve Bank of St. Louis).  

  3. THEIR FAVORITE OPTION - 34% of 1,015 Americans surveyed in early April 2018 picked real estate as the best long-term investment today.  26% selected stocks as their top long-term choice (source: Gallup).    

  4. NO INCREASE NEEDED - Purdue University announced on 4/12/18 that it will keep in-state tuition at $9,992 for the 2019-2020 school year, the 8th consecutive school year that Purdue has charged $9,992 for in-state tuition.  The president of Purdue University is Mitch Daniels, former OMB director (source: Purdue). 

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