The retail sector is a major focus for investors this week and Wednesday will bring us perhaps the biggest news day on this front.
At 8:30 a.m. ET, the October reports on retail sales and consumer prices will both be released from the government, with earnings highlights also expected to include Target (TGT) and Victoria’s Secret parent company L Brands (LB).
Tech giant Cisco (CSCO) is also set to release earnings.
Expectations for the October retail sales report is that we’ll see a tempering of consumer buying with October sales set to be flat after September’s post-hurricane figures showed the biggest one-month gain since 2015.
The latest reading on consumer prices should also show that prices rose 0.1% over the prior month and 2% over last year. “Core” consumer prices — which excludes the more volatile costs of food and gas and is more closely-watched by economists — are expected to rise 1.7% over last year, below the Fed’s 2% inflation target.
Tax reform and stocks
Throughout 2017, the stock market’s relationship — or lack thereof — to Republican plans to cut taxes have been a major source of investor discussion.
Namely, how good will tax cuts be for stocks, or do stocks need tax reform to keep going higher, or is the market already pricing in tax cuts.
But an angle we’ve discussed a couple times is whether right now is the best moment for tax cuts. On the heels of two straight quarters of 3% GDP growth, one could perhaps argue that the economy is starting to improve even without a boost from lawmakers. Another side of this line of thinking is whether now, after a big post-crisis rally in stocks and an economic recovering entering its ninth year, is really the best time to give corporate America what is essentially a handout.
Writing on his blog Calculated Risk on Tuesday, economist Bill McBride notes that the current economic environment — low unemployment, cycle-high economic growth, strong financial markets — is a time to be cutting deficits, reducing regressive taxes like the payroll tax, and increasing income taxes on the highest earners. The current GOP plan, of course, is the opposite of this.
The estate tax, which disproportionately impacts the wealthiest families despite claims that it’s really about helping farmers, has become a central point of contention in the tax reform debate. Most of the benefits of a tax overhaul accrue to businesses and, by extension, the shareholder class. And both the Senate and House plans, as currently constructed, will add over $1.4 trillion to the deficit over ten years.
On Tuesday, analysts at Goldman Sachs updated their outlook for tax reform’s hopes, saying they now put an 80% chance on some package getting signed into law early next year. Though of course, there is still a long way to go on particulars.