On Friday morning, we heard plenty of jawboning about tax reform, notably from Gary Cohn.
This should be read as a half-hearted, last-ditch effort to reassure Americans that the entire Trump agenda isn’t dead in the water thanks to the ongoing and increasingly aggressive Russia probe.
The dollar got a boost from Cohn’s comments, although one has to think that most of what we saw in the greenback on Friday was attributable to the NFP print and also to the fact that it was due for a bounce.
“White House economic adviser Gary Cohn’s comments that he’s confident tax reform can be accomplished by year-end is sending the USD higher after robust U.S. July jobs report,” Credit Agricole’s Vassili Serebriakov assures you.
Bloomberg’s Ye Xie has a slightly less sanguine take. To wit:
Cohn’s comment on tax cuts and repatriation remind me of Ronald Reagan’s “read my lips” moment: If you repeat something enough, it might come true. However, the market is in show-me-the-money mode. Take a look at how high-tax versus low-tax stocks performed and you can see investors aren’t expecting much gets done. Ignoring all the hyperbole on tax reform is mostly likely to be a winning strategy. Tax cuts may still come at some point. But until the Republicans get the house together, it’s a game of waiting for Godot.
Meanwhile, have a look at the evolution of small business confidence.
True, a multi-year chart looks great, and clearly reflects the “Trump bump”:
But since Trump is a “what have you done for me lately” type of guy, let’s take a look at what the index has done since the initial bump in December.
As it turns out, small business confidence is declining:
Now again, that’s declining from a rather large post-election spike and as you can see in the first chart, we’re still at near-decade highs.
But the NFIB itself admits that gridlock in Washington (which is of course attributable not to Democratic “obstructionists” but to Trump himself, who, contrary to all the rhetoric, has turned out to be absolutely inept when it comes to “the art of the deal”) is beginning to weigh on sentiment.
Here’s an excerpt from the latest survey:
The Index peaked at 105.9 in January and has dropped 2.3 points to date, no doubt in part due to the mess in Washington, D.C.
Progress is being made, but poorly communicated, and the biggest issues, healthcare and tax reform remain stuck in the bowels of Washington politics.
Given that, can you guess what’s happened to the Russell 2000? This:
So much for this…