Economics

Stock market sheds 372 points on same day Trump special counsel announced

There may be more at play here than just waning hope that Trump’s tax cuts are going to be passed…

Trump’s proposed tax plan is enticing. The standard deduction would be doubled, which will help most families. Investment taxes would be reduced. This could all mean a serious boost to the economy. It might have been a long shot, but now, with the media throwing around “impeachment” as its latest buzzword, those hopes appear to be shattered.

The market reacted today like a balloon whose air had been let out. The New York Times reports on this loss of hope:

WASHINGTON — Only two months ago, Republicans in Congress and President Trump’s top economic advisers were confidently predicting that a sweeping rewrite of the tax code would be in hand by summer’s end.

But with the White House consumed with constant upheaval, Congress facing the prospect of myriad investigations on top of its delayed duty to fund the government, and health care legislation still grinding through the Senate, those hopes have faded. Even with the less ambitious plan of just tax cuts — not a tax overhaul — the new mantra in Washington is “Maybe next year.”

“I think people are beginning to settle in and come to the realization that this is going to be a long ride,” said Ken Spain, a former National Republican Congressional Committee spokesman who lobbies for businesses on tax issues. “The hope was to get something done by the end of 2017, but this could slip to 2018.”

MORE THAN JUST POLITICS

But, that’s not all. It’s also earnings season. So far, the results have been positive. But there have been a few hiccups.

Target announced its earnings today, and the news isn’t bad, but it’s not great either. It managed to increase its profits, which means it’s become more efficient. But despite that, its sales continued to decline. This is probably a result of increased competition from Amazon, but the boycott over its policy of mixed-gender bathrooms may also still be having some effect. Target has lost billions since the boycott was first announced in April of 2016.

Cisco is a major player in the economy since its hardware is used in computer networks all over the world. However, demand for routers remains weak, which could signify that network growth is slowing. This might be because of a slowing economy, here and abroad. So, while analysts predicted a 1% decline in Cisco’s revenue over the next fiscal quarter, Cisco announced today that, instead, they are expecting a 4 to 6% drop. It also announced it would lay off another 1,100 employees. Its stock dropped in response.

Meanwhile, economic fundamentals are weakening. Household debt levels have now surpassed peak 2008 levels. Auto loans are up, driven by a rise in subprime borrowers. Mortgage applications are down, which could signal that the housing market is cooling off. Restaurant sales are also down for the 3rd straight month, which could indicate that consumers are beginning to tighten their belts in anticipation of an economic slowdown. Eating out is expensive, and cutting back in this area is an easy way for families to tighten up their budget.

If the stock markets have been riding high on hopes of a Trump tax cut, they have been overly optimistic indeed. It was always a long shot.

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