Wednesday, November 29, 2017

Rotation Beginning?

Rotation Beginning?

Well, yesterday I wrote about how my MFI stocks are up 7 or 8% in past couple weeks. Today that move continued.  Clearly this is tied into the pushing forward of corporate tax cuts in Congress.

It is funny, I have kind of assumed tax changes were mostly priced in as market is up 18% this year.  But if you dig in the numbers, the stocks that have really gone up are not really those that get the biggest impact from lower income taxes.  I mean NFLX, AMZN, TSLA - these guys don't pay much in corporate taxes.  BRK, yes. And it is up just 12.5%.  But IWF, the growth ETF is up 25%.

Macro Tourist

I like to read the Macro Tourist.  He has some very thought-provoking  essays.  He also argues rotation is beginning in today's essay (TAX REFORM ROTATION).

Here is the section that caught my eye:

"I started with the proposition that much of the tax cut was built into the market, but expressed my worry that some smart excel crunching analysts were claiming the market was underestimating the tremendous impact of the corporate tax cut. Sam pointed out that if my theory was correct, then we should have seen those companies that would benefit most from the tax cut, rally the most over the past couple of months.

Yet when we have a look at the stocks that have risen the most, it’s not those stocks. The last couple of months have been a momentum chasing FANG craze. Not the companies that will benefit most from the tax cut.

And when I looked at yesterday’s action, it seems clear the market was not prepared for the tax bill progress. On news that the Senate had the votes to pass the bill, the S&P 500 exploded higher and they monkey-hammered the Nasdaq lower."

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