Tax Cuts and the Surging Bull Market

The market has been soaring through 2017, and basically since the election, but since the announce of the corporate tax cuts in the recently pass Tax Cuts and Jobs Act, the stock market is showing record growth.  Taking the corporate income tax rate from 35% to 21%, is basically a 40% tax cut to Corporate America. And they are celebrating.  

Individual Tax Relief

The recently passed tax reform was touted throughout the election as something good for Middle-income Americans.  While individual rates will decrease, that is only true in the short term.  Over the next eight years these tax cuts to individuals will slowly erode leaving almost a 53% increase to some when that happens.  

By then the idea is that middle class Americans will be in a much better financial place with higher paying jobs that scaling back the tax cuts little by little won’t matter.  It seems we’ll cross that bridge when we come to it.  

Corporate Tax Cuts Trickle Down?

Some experts feel that US corporations will spend their newly found money on their highly compensated employees with dividends and stock instead of investing into their work force with higher wages.  There has already been an increase in announcements of corporate stock buybacks since the Tax Cuts and Jobs Act was passed.  

We will have to wait and see how much corporate America shares in their tax relief with middle income workers – but one thing is certain, tax cuts to companies is fueling a Bull market with never before seen growth.

How High Will it Go?

When we posted our article, How Long Can the Market Sustain its Low Volatility, last September, we were wondering just how long the market will keep its calm.  Well here we are 5 months later, and we are still wondering the same thing.  This unprecedented surge has market analysts everywhere wondering if it’s soaring too far too fast.  Some fear that we’re in a “melt-up”, which is based on emotion instead of fundamentals, is unsustainable, and is always followed by a melt-down.  

FOMO (fear of missing out) is fueling the emotional rise and appears to be pervasive in the stock market today.   We should not assume that the rally during 2017 and the beginning of 2018 will continue, some experts feel that a correction is long overdue.

The stock market today is more like a stock car on high-octane fuel, and we are all just along for the ride, wondering when we’ll take a pit stop for fuel or if we will just crash and burn.

Great Point Capital specializes in equities and equity options, serving the trading community since 2001.  We have a strong network of experienced and knowledgeable traders actively trading the firm’s capital on the most advanced software platform available.  We are one of the few firms offering access to the Takion platform, enhancing your trading performance.  Contact us today to learn how you can earn your maximum potential in times of high or low volatility from experienced traders with proven strategies.  

Wall Street and Corporate America Biggest Winners of Tax Reform

President Donald Trump has campaigned his Tax Cuts and Jobs Act since the beginning of his election as a change that will benefit middle-income Americans.  While it remains to be seen just how much Main Street USA will benefit from the tax reform, one things is clear – the biggest winners are Wall Street and Corporate America.  

With the reduction in the corporate tax rate going from 35% down to 21% permanently, this essentially gives corporations a 40% tax cut.  There is also a 20% tax deduction for all pass-through companies such as LLCs, Partnerships and S-Corps.

This reduction in income taxed to corporations was the main focal point of Trump’s campaign.  These new corporate tax rates take the tax rate of US companies closer to Canada’s 15% rate, or the rate of 12.5% in Ireland.  For the first time in a long time, corporate tax rate in the US is lower than in Mexico which has a 30% corporate tax rate.  

Relief for American Companies Operating Abroad

When American companies earn money overseas, they will no longer owe taxes on that money.  While this could possibly encourage some companies to keep their profits in foreign lands, there are also incentives to repatriate those profits back to the US.  Under the new tax plan, when money is brought back into the US, corporations will owe tax a rate between 8% and 15.5%, which is quite a bit better than the current 35% tax owed on repatriated funds.  This gives companies incentive like they haven’t had before to bring those funds back into the US to further spur economic growth.  

Apple is the world’s most valuable company, and just recent issued a press release in which they announced they will repatriate funds back into the US generating a tax bill of $38 billion – the largest in history.  Their plan also includes investment into capital spending in the US.  

We have been experiencing the longest period of calm in the market in history, even more so than the mid-90’s.  This is reflective of the excitement which some are calling euphoria driving the market continually upwards.  It seems that Corporate America is voicing how they feel about tax cuts.  

Great Point Capital specializes in equities and equity options, serving the trading community since 2001.  We have a strong network of experienced and knowledgeable traders actively trading the firm’s capital on the most advanced software platform available.  We are one of the few firms offering access to the Takion platform, enhancing your trading performance.  Contact us today to learn how you can earn your maximum potential in times of high or low volatility from experienced traders with proven strategies.  

Surging Market Spurred by Politics and Tax Reform

About a dozen listed stocks started the DOW Jones Industrial Average (DJIA) in 1896, with only one original company, General Electric remaining of the 30 American conglomerates that make up the DJIA today.  In 2015, Apple was added to the Dow, showing that it is no longer just made up of industrial companies.  

The DOW passed its first 1,000 mark after 77 years, and during 2017 passed that five times over, ending 2017 close to 25,000.  It only took one month for the Dow to increase from 24,000 to 25,000.  If you think that’s impressive, how about the mid-Jan rally increasing 1,000 in only seven days?  The stock market is setting new records right off the bat in 2018, continuing with the rally throughout 2017, market watchers are curious if any slowdown is in sight?

The Effect of Politics on Economic Growth

The DOW has risen 7,000 points since the election of Trump, along with Nasdaq which has climbed about 38%, and the S&P has not declined even 3% since the election in November of 2016.  

Individual companies have shown significant growth such as Amazon (AMZN) which has jumped 65%, Nvidia (NVDA) which is a tech company based in CA that has soared 213%, Netflix (NFLX) is up 80%, Best Buy (BBY) is up 90% and Bank of America (BAC) is up 85%.

Corporate Tax Rate Cut Spurs Market Rally

As promised, the Tax Cuts and Jobs Act was passed before the Christmas Holidays, taking the corporate tax rate of 35% down to 21% with no date for expiring.  In addition to the C-Corporate tax deduction, other pass through companies such as S-Corps, LLCs and Partnerships will also get a 20% tax deduction.  

The reduction of 35% down to 21% equates to a 40% tax deduction for large corporations, which has seemed to set the market soaring.  This has been the longest period of calm in Wall St. history, reflecting the excitement of investors.  Strong economic growth at home and abroad will be boosted even further by the GOP tax reform, especially the reduction in corporate tax rate.

Corporate America is making it clear how they feel about tax cuts.  

Check out our post on How Long Can the Market Sustain its Low Volatility, and contact Great Point Capital for all your trading needs.  

Great Point Capital specializes in equities and equity options, serving the trading community since 2001.  We have a strong network of experienced and knowledgeable traders actively trading the firm’s capital on the most advanced software platform available.  We are one of the few firms offering access to the Takion platform, enhancing your trading performance.  Contact us today to learn how you can earn your maximum potential in times of high or low volatility from experienced traders with proven strategies.

IPOs Increase for 2017 Slow and Steady

The IPO market appears to be improving this year, although factors still exist that will keep it from growing too rapidly.  Company managers and owners must be ready to give up some control to shareholders when going public.  This can deter some companies from transitioning to a publicly traded company until they require the capital for growth.

For that choose to prolong the jump to an IPO, private equity markets and venture capital have matured to fill the gap. Companies choosing to stay private longer can finance debt with relatively low interest rates providing an attractive option for growth.   The private equity business sector also received additional boosts with the Reg A and crowdfunding rules that went into effect over the past couple years, which made it easier to raise capital without taking the step of a public IPO.  The regulations of the Sarbanes-Oxley Act of 2002 is another factor that makes staying private even more attractive as public companies must invest time and accounting expertise to comply.  

Opportunities Exist with Special Purpose Acquisition Company (SPAC)

Another opportunity exists for experienced traders willing to do research, which is a Special Purpose Acquisition Company, (SPAC).  This is an interesting hybrid of public and private funding that is growing in the markets today.  An SPAC IPO is essentially a blank check for the managers to go out and acquire private companies.  

An SPAC is usually formed by people with in-depth knowledge typically in a specific industry, who are confident that they can identify profitable acquisition opportunities.  100% of the money raised through the IPO is deposited into a trust account to fund the SPAC, giving reassurances to investors.  

Great Point Capital offers professional services for active including Proprietary Trading, Index Options and Quantitative Trading services.   Our team has experience trading in stocks, futures, IPOs and SPAC’s.  We are one of the few firms with the ability to offer access to Takion trading software, enhancing your trading performance.

Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital.  Our mission is to lead the equity day trading community and give traders the support and tools necessary to make the most of their trading careers.  Contact us today in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results

How Long Will the Calmness on Wall Street Last?

With the level of uncertainty in the air it is a wonder we are experiencing such near record low volatility on Wall Street.  Is complacency to blame for the calmness on Wall Street?  Have we become so used to unsettling news and political turmoil that it’s now the new normal?  How do we explain the high performance we’re seeing with the unprecedented news we see regularly?  We can’t turn on the news without hearing about Russia, North Korea, Climate Control, Healthcare and many other globally important issues.  

This type of news typically affects the market in some way, although investors reactions to current events are also unprecedented.   Have we become so desensitized to political turmoil that we are complacently enjoying the high returns we’re seeing today?  If that is the case, there are some concerns that investors will be ill-prepared for an inevitable shock to the market.  

Historically, low volatility is good for markets, but sooner or later something’s got to give.  Usually, when the VIX is high, the S&P 500 is low, which could be a good time to buy.  When the VIX increases, the S&P 500 typically decreases.  If the VIX increases too quickly, however, investors show concern that the market will continue to decline and people begin to react irrationally.  This fear factor makes it difficult to trade during market volatility.  

Trade with Confidence During Low or High Volatility

Great Point Capital is a selected team of professional, experienced traders. An experienced trader will know how to react, or not react at all to events that could rattle a new up and coming trader.  Hone your strategies and work with an experienced team on our unique intra communication software platform.  Experience the sophistication of Takion  trading platform for superior performance catered to your trading style.  .  

Having a stable trading platform is always important, but having the right software to handle increasing quote traffic when volatility returns will determine whether you can take advantage of the trading environment or get swallowed by it.  Experience the sophisticated trading platform of Takion for superior performance based on your unique trading style.  Great Point Capital is a member of FINRA.  

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our knowledgeable staff.  

Wall Street Fear Gauge Near Record Lows

Historically, when the market is in a positive upswing, volatility will decrease, and conversely when volatility increases market performance usually decreases as investors experience greater risk.  The volatility, or fear gauge, has a direct impact on wall street returns and performance.

With the current fear gauge near record lows, we continue to wonder how long the market will remain this calm.

HFT on the Rise

High Frequency Trading (HFT) has increased to the volume of approximately half of all wall street trades.  With this rise in HFT and fewer market participants, when the market swings the other way we could see the impact with a large correction.  

With the level of HFT at record high levels it seems that HFT activity along with fewer participants will contribute to future wall street performance, and possibly direct rather than react to the volatility.  

Passive Investing

Passive Investing occurs when investors place their money in ETFs or index mutual funds instead of actively managed funds, and has been increasing over the last decade.  A recent report from Moody’s Investors Service states that over 28% of assets under management are in passive investments at the current time, and expects that by 2024 that number will increase to over 50%.

Passive Investing can soften volatility as new funds are continuously deployed into the same stocks, rather than moved between sectors, or out of stocks entirely into bonds or cash or commodities.

The new Fiduciary rules, in place since June 9, will make passive investments even more attractive, given the risk of higher fees and underperformance by actively managed funds.

More Frequent Option Expiration

Options on U.S. Stocks used to expire once a month or once per quarter, but now SPX, the index that tracks the S&P 500 stocks, has options that expire three times per week with some days having morning and afternoon expirations on the same day.  These all give investors new methods to offload risk in any time frame, lessening the need to buy and sell in the open market to adjust their positions.  Moreover, investors fine-tune their bets to the point that they don’t need to overreact to market moves, which can create volatility.

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our experienced traders.   

How Long Will the Market Maintain This Low Volatility?

The volatility of the stock market directly impacts stock returns and overall performance.  History shows us that when the market experiences positive performance, volatility will decrease.  Conversely, with an increase in volatility, the market sees a decrease in returns and investors experience increased risk.  With the current state of low volatility, we have to wonder how long the market will remain calm, and when we should be concerned.  

The VIX is the ticker symbol on the Chicago Board Options Exchange (CBOE) that is used to measure the level of volatility in the market.  The VIX is supposed to represent the expectations for the next thirty days, and is commonly referred to as the “fear gauge”.  The VIX uses volatility of various S&P 500 index options, which is derived from the capitalization of 500 of the largest companies listed on the Nasdaq and New York Stock Exchange (NYSE).  

The VIX is one of the most followed equity indices, and is thought to be an indicator of the US economy.

VIX Hits Record Lows in 23 Years

On December 22, 1993, the VIX hit record lows when it reached 9.48.  The historical average of the VIX is typically close to 20, although it has recently been averaging under 10, and on May 9, 2017, the VIX closed at 9.77, the lowest in over 23 years.    

We typically see the market perform well during low volatile times, and that is surely the current situation, although we might wonder if the fear index is truly in line with investor confidence?  The political turmoil we see regularly these days usually brings about uncertainty, although it appears Investors are not yet concerned or waning in confidence.  

What Contributes to the Volatility of the Stock Market?

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News of mergers and acquisitions usually cause market activity, although nothing has been big enough to wake the current sleepy market.   One factor may be that there are simply less players in the market than ever before.  

Less Market Participants

The merger and acquisition business has been booming in spite of Antitrust laws that are designed to prevent monopolies that would hinder competition.  This increase in M&A has contributed to fewer market participants than just a decade ago.  

As stated in a July 2015 article from CNN Money, the number of US stocks publicly listed hit a peak record of 7,562 in 1998.  According to the Wilshire 5000 Total Market Index from 2015, there were only 3,812 publicly listed US stocks.  

Whether volatility is high or low, you can trade with confidence with an experienced team like Great Point Capital.  

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our knowledgeable staff.  

Discretionary Peg (D-Peg®) Order Predicts Price Changes

IEX is the newest stock market in the United States, founded by Brad Katsuyama and colleagues who sought answers to questions others did not even know existed.  Brad and his team were recently depicted in the “Flash Boys”, the Best Seller by Michael Lewis.

IEX’s proprietary D-Peg order was designed to protect against structural arbitrage by predicting changes to the NBBO.  HFTs know when the NBBO is going to change, because they can cobble together the faster direct feeds from each exchange, and build their own NBBO.  If you are trying to get a fill at the midpoint of the NBBO, you do not want to get a fill and then have the market immediately move against you.  The proprietary signal by IEX attempts to predict that upcoming change to the NBBO, and will move D-Peg orders out of harm’s way.

For example, if you have an order in to trade at the midpoint of the NBBO, while the market is 33.95 x 33.96, a favorite strategy of the HFT is to see the quote changing to 33.94 x 33.95, sell the midpoint to you at 33.955 right before the quote change occurs, thus allowing them to buy it back immediately at 33.95 and make a half-cent profit.  To highlight just how much this strategy is occurring, in January 2017 47% of all midpoint volume on EDGX executed within 2ms of an NBBO change.

Another way to look at it would be to see how often there is no price movement after a trade at the midpoint, which is what you want to ideally see.  On EDGX, for example, there is no price movement within the following one second following a midpoint execution, only 46% of the time.  

IEX’s D-Peg orders are designed to keep you out of this predatory environment by moving you away from the midpoint if the NBBO is about to change.  There is no change in the NBBO one second after a midpoint execution on IEX 78% of the time, and only 5% of IEX’s midpoint volume is done within 2ms of a change in the NBBO.

This “crumbling quote indicator” does not in any way impede regular trading, as it is only activated for a very short period of time, five seconds per day per symbol, on average volume basis.  Protecting resting orders during times of high HFT activity can provide higher trading quality on IEX, and make a huge difference to investors.

Great Point Capital uses both IEX’s D-Peg and Primary Peg Orders.  Contact Great Point Capital today for collaboration of successful day trading strategies.

Great Point Capital has been serving the trading community since 2001 and our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are headquartered in Chicago with a location in Austin, TX.  Contact Great Point Capital LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your online equity trading performance.