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

Does Bill HR3555 Present a Potential Conflict?

A new bill was just introduced by Representative Loudermilk (R-GA), which would amend the Securities and Exchange Act of 1934 to reduce or eliminate regulation overreach into business models of exchanges that do not involve either reporting or effecting a transaction on the exchange.  This may have been prompted by the flurry of lawsuits following the publication of Michael Lewis’ Flash Boys.  One such lawsuit was thrown out when the judge claimed the exchanges had immunity under quasi-government powers.  

Since the filing of the combined lawsuits, the Securities and Exchange Committee (SEC) commented by saying that they had no authority to adjudicate the lawsuit, and that “immunity only applied when stock exchanges acted as a regulator, and not as an operator of a market”.  This means that the SEC is stating that exchanges are NOT entitled to absolute immunity arising from commercial activities such as enriched data feeds or selling collocation.

This could be weighing on the minds of the executives of the exchanges, prompting the proposal of HR3555.   The bill must pass the House and Senate before becoming law and will most likely be reviewed by committee before it’s sent to the House.  

If passed, Loudermilk’s bill appears to give protection from investor lawsuits stemming from unfair advantages granted to HFT firms.  The implied intent is to skirt the SEC’s role of protecting investors by finding a way around them in Congress.  Just by adding one paragraph to the original Securities Exchange Act of 1934, the SEC could be prevented from acting as a regulator of stock exchanges for any issue surrounding the selling of speed.  

Potential Conflict?

If HR3555 removes the non-execution portions of their business from regulation, wouldn’t that also remove those from their immunity? That would take it out from under SEC regulation, but it seems that it would also take it out from under the immunity umbrella afforded to “quasi-government” stock exchange activities.

If they carve out those activities from those regulated under the SEC Act of 1934, how could they then claim immunity for the removed activities? They would have it both ways – not included under the Exchange umbrella for regulatory purposes, but included when courts look at immunity granted to Exchanges.

We will be watching the progress on HR3555 as it moves through the legislative process.

Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital.  Headquartered in Chicago with offices in Austin, TX, we specialize in equities and equity options.  Contact us today to learn how we can successfully trade together with high performance results.  We are one of the few firms able to offer access to Takion Software Platform, enhancing your online equity trading experience.

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?

.

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.  

Who Profits on Your Stock Orders?

Third party firms that are paying for orders under a Payment for Order Flow (POF) agreement do not enter into those arrangements to lose money, they are making money as well as the broker they are paying.  Reg NMS says that your broker needs to provide you with the best execution available at the time.  So how can two firms, your broker and the third-party firm paying for POF, manage to profit from your order, while still giving you to best possible price?

Maker Taker

One instance where two firms can profit from your order is when they are getting paid for the liquidity you provide.  If your order is not marketable immediately, they send it to the venue that will pay the most for adding liquidity.

For example, providing liquidity on ARCA for a 1000-share order results in a rebate of about $3.00 that goes to the POF firm who paid your broker for the order.

HFT

The other instance is that the POF firm used your order as part of a profitable trading strategy.

For instance, in heavily traded stocks, a good amount of trading is done at the midpoint of the NBBO (National Best Bid and Offer).  

If the market is 30.24x30.25, and you send your order to buy 1000 shares at 30.25, the POF firm sells you the stock at 30.25 (usually 30.24999, which allows them to jump in front of everyone at 30.25), then they sweep through the dark pools and midpoints on exchanges and buy the stock at 30.245.  This nets a profit of about .005/share, or $5.00, on your order.

The POF firm may also be aware that the market is just about ready to turn and go to 30.23x30.24. They know this through their sophisticated predictive algorithms based on trades and changes in quote sizes, combined with the direct market feeds that are faster than the feeds creating the NBBO.

The faster direct feeds might show the market is already at 30.23x30.24, but the NBBO won’t show that for few milliseconds.  This makes it easier – they can give you the “best execution” available on the current official source, the NBBO, at 30.25, then turn around and immediately buy the stock back at 30.24, which became the true offer in the market.

It is vitally important for traders to have control of their orders.  The amounts made from these orders is negligible for the retail customer that is only trading a couple times per month, but to the HFT firm doing this across thousands of accounts every day it adds up to millions of dollars.  

Contact Great Point Capital today to take control of your orders and seize additional profits per trade.  We have the knowledge of the market, the experience and resources to assist you in routing your orders so that it is most profitable to you.  

If you need a broker with capital, and access to orders including those in dark pools, contact us today to see how we can work together to realize your true trading potential.  

Learn more about Great Point Capital today.  Our 100+ prop traders actively trade the firm’s capital, increasing their leverage and returns.   We are one of the select few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To take control of your orders and to capture additional profits, contact Great Point Capital today.