top of page
Search

A Christmas Miracle | Crouch Connection, January 2018

  • Dave Crouch
  • Jan 21, 2018
  • 5 min read

A CHRISTMAS MIRACLE

The New Year is off to a roaring start with the Dow Jones Industrial Average bursting through the 25,000 level for the first time. The surprising exuberance that carried us higher during 2017 seems to be alive and well, and as 2017 drew to a close, most of us were surprised to find that President Trump and Congress had pulled off a Christmas miracle and passed the Tax Reform bill.

We are still learning what all the implications for the markets may be, but the tax package appears to make several changes that could be very beneficial to the economy, and by extension, to the markets. In addition to cutting the corporate tax rate from 35% to 21%, the tax package contains several incentives for business spending, such as allowing the write-off of capital investments in the year they are made, instead of requiring the deduction to be spread over several years and giving incentives to companies holding cash overseas to bring back that money to the U.S.

While many news organizations made it sound like this tax reform package was a windfall for the wealthy, we believe that it could be the catalyst that extends this secular bull market that we believe has several more years to run.

In this week’s annual edition of the Barron’s Magazine’s Roundtable, nine of the top investment minds in the industry discussed tax reform at length. The general agreement was that the tax reforms have reversed the mindset of corporate CEOs with regard to where they locate their businesses. According to Henry Ellenbogen, Chief Equity Investment Officer at T. Rowe Price,

“Over the past ten years, American companies made an inordinate effort to think about how to move people or structures outside the U.S. for nonproductive purposes – basically to increase earnings. Now we can get back to having managers focus on productive investments, greater efficiency, and value creation. This will unlock the strength of America and drive GDP growth. Simply, the absence of a major negative is a positive. This is a generational change.”

Whether the companies that make up the market decide to take the tax savings and invest in their business, to buy back their own stock, or simply to pass along their new profits to their customers in lower prices, the tax reform package could be very beneficial to many Americans. Let’s look at what it means for investors.

WHAT DOES TAX REFORM MEAN FOR INVESTORS?

“Peeling back the onion”, asking several additional questions and posing plausible answers to those questions may provide some insight into how this affects the average investor.

  • What will companies do with their tax windfall? We believe the answer to that question will determine, to a great degree, what to expect from the stock market.

  • Passing it along to employees. We are already hearing about some companies giving their employees $1,000 bonuses and some giving $1 per hour wage hikes. That money will get spent rather quickly providing a small boost to consumer spending.

  • Passing it along to stockholders. Raising the dividends and increasing stock buybacks will benefit stockholders directly and will also likely boost stock prices.

  • Additional capital spending. The action that would be the most beneficial to the economy and to Americans as a whole would be to invest in new equipment and machinery that would increase production and productivity and bring our manufacturing industry back to the United States. We expect many companies to do this, additionally benefitting companies that make the vehicles, machinery and equipment.

  • What industries will benefit the most? Again, a very important question for investors. Companies are affected in several different ways. Let’s consider some examples.

  • Retail Stores. While we do expect almost 100% of the tax cut to flow through to company bottom lines in 2018, it is our opinion that retailers will gradually pass along these savings to their customers over the next three to five years. So, other than a general boost to the economy, the boost to retailers will probably be relatively short-term.

  • Banks. Although economist have been predicting higher interest rates for years, 2018 may finally see enough economic growth to produce the increase in rates that banks have been hoping for. Although no one I have seen is concerned about a big increase, the new Fed Chairman could stir things up somewhat differently than Janet Yellen, holding firm on short-term rates but unwinding the Fed’s bond-buying program much quicker than previous efforts, providing a boost to 10-year bond yields…increasing interest rate “spreads” which would be very beneficial to the banks.

  • Red State real estate developers, homebuilders, and office building owners. Amazon’s announcement of their move to establish a second headquarters away from Seattle may just be the first of many we hear about. Redfin CEO Glenn Kelman says Silicon Valley will soon see a mass migration of tech companies and talent. (Maybe an exaggeration?) Kelman is predicting an “accelerating shift out of coastal cities as homeowners seek to avoid the higher tax rates of the recently passed tax bill. Cities like Denver, San Antonio and Houston “ (and probably Nashville)” are primed to be the next hubs.”

  • Machinery and equipment manufacturers. Although analysts have not yet released updated numbers since passage of the tax bill, we believe these kinds of companies will be some of the biggest beneficiaries of the tax reform bill. In addition to the tax savings most companies will experience, these companies sell the equipment that benefits most from the accelerated writeoff deduction. We believe this will cause many companies to act on plans that have been on hold during the slow economic times of the past few years.

  • Truck manufacturers. Like machinery, trucks will provide the accelerated writeoff that business owners love, and almost every business owner likes a new truck. Saving from the tax bill will likely provide many businesses with the funds to replace their older trucks.

Analysts have just begun to factor in the effects of the tax bill into their earnings estimates. We believe there will be some significant increases in expectations for many companies. The biggest winners should be companies with strong pricing power that sell capital equipment. Many other companies will enjoy significant tax savings that will boost their earnings. Stay tuned!

“In the business world, the rearview mirror is always clearer than the windshield.”

Warren Buffett

WRAP UP

It is a new year and we are anxious to sit down with our clients and review 2017 and make plans for 2018. Kim will be in touch soon to schedule appointments but if you want to speed up the process, please give us a call. We’ll be glad to see you.

Please give us a call if there is any way we can be of assistance. We always enjoy hearing from you!

Sincerely,

Registered Principal

Branch Operations Manager

Financial Advisor

Any opinions are those of David Crouch and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk including the possible loss of capital. Past performance may not be indicative of future results. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. Please consult your tax advisor for your particular situation.

The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.

Commenti


Featured Posts
Recent Posts
Archive
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square

Visit

3326 Aspen Grove Drive

Suite 602

Franklin, TN  37067

Call

T: 615-778-9842

© 2019

Aspen Grove
Asset Management

book image_edited_edited.png

  Click to Read CRS Document 

Important Disclaimers

AGP Franklin, LLC ("AGP Franklin") is a Registered Investment Advisor ("RIA"), located in the State of Tennessee. AGP Franklin provides investment advisory and related services for clients nationally. AGP Franklin will maintain all applicable registration and licenses as required by the various states in which AGP Franklin conducts business, as applicable. AGP Franklin renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or pursuant to an applicable state exemption or exclusion.

 

Terms of Use

Please read these terms and conditions of use (“Terms”) carefully before using the website located at https://www.aspengroveassetmanagement.com/ https://www.strongtowerwealthmanagement.com/ (“Website”) or any of the information or services provided by AGP Franklin, LLC (collectively “AGP Franklin”, “we”, “our”, “us”) in connection with the Website. By using the Website, you acknowledge that you have read and understood these Terms and accept to be legally bound by them. If you do not accept and agree to these Terms, you are not an authorized user of the Website or any of the information or services provided by AGP Franklin in connection with the Website and should promptly terminate all use thereof. The terms “you” and “your” mean you and any entity you may represent in connection with the use of the Website. You may use your browser to download or print a copy of these Terms for your records.

 

AGP Franklin reserves the right to change, modify, add or remove portions of these Terms at any time for any reason. We suggest that you review these Terms periodically for changes. Such changes shall be effective immediately upon posting. You acknowledge that by accessing our Website after we have posted changes to these Terms, you are agreeing to these Terms as modified.

 

These Terms were last updated on January 21,2025.

 

Risk Disclosure

Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable.

 

Asset allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Performance of the asset allocation strategies depends on the underlying investments.

 

This website is intended to provide general information about AGP Franklin and its services. It is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information.

 

Market data, articles and other content on this website are based on generally available information and are believed to be reliable. AGP Franklin does not guarantee the accuracy of the information contained in this website. The information is of a general nature and should not be construed as investment advice.

 

Please remember that it remains your responsibility to advise AGP Franklin, 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, if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

 

AGP Franklin will provide all prospective clients with a copy of our current Form ADV, Part 2A ("Disclosure Brochure"), Form ADV Part 2B, which is the Brochure Supplement for each advisory person supporting a particular client, and the Form ADV Part 3 (Client Relationship Summary or Form CRS). You may obtain a copy of these disclosures on the SEC website at http://adviserinfo.sec.gov or you may Contact Us at (615) 778-9842 to request a free copy via .pdf or hardcopy.
 

Privacy Disclosures

AGP Franklin is committed to safeguarding the use of personal information of our Clients (also referred to as “you” and “your”) that we obtain as your Investment Advisor, as described in our Privacy Policy.

 

AGP Franklin does not collect personal non-public information through this website; however, the Advisor may collect information from you on application forms, agreements, profile or investment policy statements, and other documents received or processed in relation to services we provide. We also may collect information from other sources.

 

We do not respond to "do not track" requests because we do not track you over time or across third party websites to provide targeted advertising. We may track you across our website to help us improve our content.

 

We may use "cookies" and similar online technologies to keep, and sometimes track, information about you regarding your usage of our website. Cookies are small data files that are sent to your browser or related software from a Web server and stored on your device. Cookies help us to collect information about your usage of our website, including date and time of visits, pages viewed, amount of time spent on our sites, or general information about the device used to access the site, such as the browser used. You can refuse to store or delete cookies by configuring your web browser settings. Most browsers and mobile devices have their own settings to manage cookies. If you refuse a cookie when on our website, or if you delete cookies, you may experience some inconvenience in your use of our website, such as having to re-configure preferences.

 

When you are on this website you may have the opportunity to click-through to other websites, including websites operated by unaffiliated third parties. These sites may collect nonpublic personal Information about you. We do not control sites operated by these entities and are not responsible for the information practices of these sites. This Privacy Policy does not address the information practices of other websites. The privacy policies of websites operated third parties are located on those sites.

 

For a copy of the AGP Franklin Privacy Policy, please click here.

bottom of page