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Dow Reaches Another Milestone

CONSUMER SENTIMENT READING COOLS

The initial January University of Michigan consumer sentiment index came in at 94.4 last week, 1.5 points beneath its final reading of 2017 and 4.1 points under its level of one year ago. Without prompting, 34% of respondents to the latest UMich survey brought up the subject of the recent federal tax reforms; 70% of them felt the reforms would have a positive effect on their lives; 18%, a negative effect.1

WINTER WEAKENS HOUSING STARTS

New Census Bureau data shows groundbreaking decreased 8.2% in December after a (revised) 3.0% November gain. Building permits ticked down 0.1% last month.2

BITCOIN PLUMMETS & RECOVERS; OIL DESCENDS

Commodity investors watched the premier digital currency crest above $14,000 Monday, sink under $10,000 Wednesday, and rebound to a price of $11,400.35 as Wall Street’s trading week ended. Friday, the International Energy Agency predicted U.S. oil output would near a 50-year peak in 2018. That hurt prices and left WTI crude 1.5% lower for the week; it fell to $63.37 at Friday’s closing bell.3,4

DOW REACHES ITS SECOND MILESTONE IN A MONTH

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Strong start to the year for Stocks!

LOW UNEMPLOYMENT, BUT LESS HIRING

The Department of Labor’s latest jobs report announced a headline unemployment rate of only 4.1% in December, but it also showed companies adding just 148,000 net new workers last month. Even so, net payroll growth averaged 204,000 during the last three months. In hiring terms, the health care sector grew more than any other industry in 2017, expanding by 300,000 jobs. Wages rose 2.5% last year. The broader U-6 jobless rate, encompassing the underemployed, ticked up a tenth of a point to 8.1%, which was still half a percent below its level of a year ago.1

  

MORE FACTORY ACTIVITY DURING THE HOLIDAYS

December saw U.S. manufacturers pick up their pace. The Institute for Supply Management’s purchasing manager index for the factory sector surprised to the upside with a fine reading of 59.7. Economists polled by Briefing.com had projected the PMI to decline 0.2 points to 58.0. ISM’s non-manufacturing PMI fell in December, weakening 1.5 points to a reading of 55.9.2

  

WTI CRUDE CONTINUES TO RALLY

Finishing at $61.41 on the NYMEX Friday, it advanced 1.7% last week. Investor concern over anti-government protests in Iran and stateside data showing smaller crude reserves helped. Oil settled at $62.01 Thursday, which was a peak unmatched in roughly three years.3

  

A SHORT, NOTEWORTHY WEEK STARTS THE YEAR

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Legislative Update

Tracking legislation that may impact your business, your estate, your retirement, or your wallet.

Recent Developments

 The I.R.S. gave relief to taxpayers affected by natural disasters.Fall 2017 income tax extension and estimated tax payment deadlines were rescheduled to January 31, 2018 for California wildfire victims (individuals and businesses in Butte, Lake, Mendocino, Napa, Nevada, Sonoma, and Yuba Counties). The same relief was extended to individuals and businesses victimized by flooding and hurricanes in Florida, Georgia, parts of Texas, Puerto Rico, and the Virgin Islands; in addition, hardship withdrawals from 401(k)s and similar employee retirement plans are freely allowed for taxpayers in these four states and two territories through January 31.1,2 

The employer mandate of the Affordable Care Act is now being enforced. In October, the I.R.S. began mailing letters to businesses who had not offered their workers qualifying health coverage under the ACA, notifying these firms of oncoming tax penalties. The targeted non-compliant employers are those with 100 or more FTEs who failed to observe this requirement in 2015. In previous years, the I.R.S. lacked the time and resources to enforce the employer mandate, though businesses with 50 or more workers are required to abide by it.3

The Tax Cuts & Jobs Act

 Federal tax laws will change significantly in 2018. The just-passed Tax Cuts & Jobs Act greatly alters key regulations within the Internal Revenue Code. Here is a summary of the major modifications, most scheduled to sunset in 2025 unless renewed:

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Markets Continue Rally

FED MAKES ITS FINAL RATE MOVE OF 2017

As expected, the Federal Reserve raised the benchmark interest rate by 0.25% last week. The Federal Open Market Committee voted 7-2 to take the target range for the federal funds rate up to 1.25-1.5%. Fed officials made little change to their dot-plot chart – they still see three rate hikes in 2018, and their consensus projection has the federal funds rate at 2.1% a year from now. They did elevate their 2018 GDP forecast from 2.1% to 2.5%.1

CORE INFLATION LAGS HEADLINE CPI ADVANCE

According to the Department of Labor, consumer prices rose 0.4% in November – but the core Consumer Price Index, which removes food and energy costs, only saw a gain of 0.1%. This left the 12-month increase in the core CPI at 1.7% compared with 2.2% for the headline number, a gap that may complicate matters for the Federal Reserve as it considers the pace of 2018 interest rate adjustments.2

BUYING, BUYING, and MORE BUYING

Retail sales climbed an impressive 0.8% in November following a strong 0.5% rise for October. Factoring out auto purchases, the November gain was 1.0%. Recent Department of Commerce data shows core retail sales (which do not include building materials, gasoline, and food) advancing at their best pace in three years.3

WALL STREET RALLIES

With the possibility of reduced corporate tax rates just ahead, institutional investors were notably bullish last week. Across five trading sessions, the S&P 500 gained 0.92% to 2,675.81; the Dow Jones Industrial Average, 1.33% to 24,651.74; Nasdaq Composite, 1.41% to 6,936.58. All that confidence helped send the CBOE VIX down to a Friday close of 9.42.4    

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Job growth continues...

ANOTHER MONTH OF SOLID HIRING

According to the Department of Labor, the U.S. workforce gained 228,000 more jobs than it lost during November. Annualized wage growth improved from 2.5% to 2.7%. The headline jobless rate held at 4.1% last month, while the U-6 rate, that includes the underemployed, ticked up a tenth of a percent to 8.0%. Even though October’s net job gain was revised down to 244,000, October-November 2017 represents the best two-month hiring period in more than a year.1,2

ISM INDEX MISSES EXPECTATIONS

The Institute for Supply Management’s gauge of service sector activity fell 2.7 points to a still-impressive reading of 57.4 in November. Economists polled by Briefing.com expected a retreat, albeit a lesser one: they projected a reading of 59.3.2

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