Tax Breaks, Fed Chief, Earnings and Jobs

Charles Payne
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Posted: Nov 03, 2017 11:02 AM

On Thursday, the Dow Jones industrials Average surged to a new all-time high on the combination of the GOP tax plan and the new Fed chief.

There is major excitement over the “permanent” 20% corporate tax rate that would propel America into the lower echelon of taxes, which not only allows U.S. companies to compete with the rest of the world, but it also should spark greater investments and hiring.

My biggest problem with the news is repatriation. I thought it would be much lower; I wonder how many companies come back when they can borrow money for next to nothing rather than pay a 12% tax rate.  One of those companies, Apple (AAPL) just posted its financial results and its overseas cash hoard has swelled to $269 billion, including:

  • $52.6 billion revenue consensus $50.7 billion
  • Earnings per share $2.07 consensus $1.87

There was strong sequential and year-over-year growth in iPads and Macs and all key product categories beat estimates. Perhaps tablets aren’t dead after all, and that so-called halo effect is still working for Macs:

  • 46.7 million iPhone 
  • 10.3 million iPad 
  • 5.4 million Macs

Geographic

China reversed a long year-over-year slump, surging 12% and that might just be the beginning, considering the scuttlebutt or a massive demand for the iPhone X:

  • $23.1 billion Americas +14%
  • $13.0 billion Europe         +20%
  • $9.8 billion Greater China +12%
  • $3.9 billion Japan -11%
  • $2.8 billion Rest of Asia +5%

Strong revenue and margin guidance coupled with great execution have shares higher in after-hours trading.

Today, all eyes will be on the October Employment Report, which is expected to see 310,000 new jobs.  Keep in mind that this number is payback for the (-33,000) in September caused by hurricane disruptions.

My focus will be on participation, hourly wages, and goods-producing jobs, or what I call dirty fingernail jobs, are up more than 1,000 YTD versus 2016 according to ADP.

Breadth

Apple should add muscle to the market, but it’s clear the internals are breaking down, in part to harsh reactions, or I should say an overreaction to earnings misses - something we expected.

New York Stock Exchange

  • 1,429 advancers - 1,465 decliners
  • 394 million up volume - 503 million down volume
  • 163 new highs versus 90 new lows

NASDAQ

  • 1,643 advancers -1,274 decliners
  • 1.08 billion up volume - 1.15 billion down volume
  • 133 new highs versus 81 new lows

Navigating Earnings Season

This is a consolidation period for the market, which means investors will be tested. You’ll have to bite the bullet but one should be careful not to sell into knee-jerk reaction…allow fundamentals to be your guide.

Remember; this morning, all eyes are on the employment report and whether October can make up for September’s (-33,000) print with 310,000 jobs.

Today’s Session

The jobs report came in at 261,000 for October, which was less than anticipated, but coupled with the +51,000 revision to September, about as expected.  I will get into more details on the afternoon note, but great news in manufacturing and construction, but I am worried about the sharp decline in participation. 

Overall, the economy has momentnum and a chance to shift into overdrive.  On that note, the GOP will have to make some sharp revisions to its tax plan.  It must be friendler to all small businesses, not penalize marriage and lower repatriation to a realistic rate to attract profits from overseas.