By:
On:
In: Around the web
With: 0 Comments

A little-discussed provision in the Senate tax bill could lead to a higher tax bill for millions of individual investors and cause many to unload stocks before year-end to avoid those costs.

Under the Senate’s $1.4 trillion tax overhaul, investors would lose the ability to choose which shares they can sell to reduce a position. Instead, investors selling partial stakes in a company would have to unload their oldest shares first, a process known as selling on a “first-in, first-out” basis.

The House’s tax proposal doesn’t include the first-in, first-out provision, and some lawmakers are trying to kill it. In a letter to Senate leaders on Thursday, 41 House Republicans urged their colleagues to drop the provision, saying it would amount to “massive, fundamental change that inhibits investor autonomy.”

Another concern for small investors: The first-in, first-out provision will make it more expensive to perform regular portfolio rebalancing to keep their mix of stocks and bonds constant, since the provision will raise the amount of taxes they pay.

Take the case of an investor who owns lots of shares in electric-car maker Tesla Inc. The first lot was purchased in early 2013, when Tesla’s stock had traded at $35.36 a share. The more recent lot was purchased in June at $360.75 a share.

This investor wants to sell some of Tesla stake to withdraw cash from the market on Dec. 1, when the car marker’s shares traded at $306.53. If the Senate tax provision was already in effect, this person would be required to sell the shares bought first before selling any of the shares in the more recent lot, forcing him or her to incur a taxable gain of $271.17 per share.

But under current rules, the investor would have the option of selling the shares bought last. That would generate a loss of $54.22 a share, which could be used to offset other gains.

The provision would allow investors in funds and dividend-reinvestment plans the choice of selling at the average cost of all the shares they bought. But that average-cost method doesn’t apply when selling specific shares of a company’s stock.

Source: Individual Investors Face Steeper Tax Bill Under Senate Proposal

By:
On:
In: Around the web
With: 0 Comments

The environment still looks more friendly for stocks than bonds. Global growth is broad and momentum appears good. Earnings have recovered and are forecast to rise further around the world in 2018.

And the environment still looks more friendly for stocks than bonds. Global growth is broad and momentum appears good. Earnings have recovered and are forecast to rise further around the world in 2018. U.S. stocks may look stretched based on rising earnings multiples, a red flag in investors’ minds, but in Europe, for instance, it is earnings that are doing the heavy lifting. Many emerging-market economies are much earlier in the cycle too. Investors might need to look further afield for returns.

Importantly, equities remain a place where investors still get paid for taking risk. The MSCI World equity risk premium has fallen, but still stands at 3.8%, above its postcrisis lows and its 2007 level of 3.3%, according to Citigroup.

By contrast, low bond yields and tight corporate-credit spreads offer little room for error. That means a scenario that is worrying bond investors—a more challenging 2018 in which inflation picks up, eroding already-skinny returns and potentially spurring further central-bank tightening—may pose less of a threat to equities. The risk premium offers some room to absorb higher yields.

Source: Actually, Here’s Why Stocks Can Keep Going Up

By:
On:
In: Around the web
With: 0 Comments

Americans are saving less as the economy and stock market heat up and they boost their spending on big-ticket items like cars and refrigerators.

The U.S. saving rate fell to a 10-year low of 3.1% in September, down from a recent peak of 6.3% in October 2015, the Commerce Department said Monday.

Low unemployment and rising stock prices are likely contributing to household optimism, making people willing to save less and spend more in anticipation of continued job and wealth gains.

The saving rate has now sat below 4% for seven straight months. It likewise hovered at low rates in the late 1990s, when stock prices soared and the jobless rate fell below 5%, and again in the mid-2000s, when home prices soared and the unemployment rate again dropped.

It is ill-advised for people to decrease their savings. In the 21st century, the advances in medical care mean that we will likely live longer than our parents and our grandparents. This means that Americans will need a strong savings account to draw upon in retirement to maintain their standard of living. It also means they need to actively invest and earn higher than 10% returns on that investment.

Source: Americans Are Spending More, Saving Less

By:
On:
In: Around the web
Tagged: , ,
With: 0 Comments

Big Tech can generate big numbers, but it was fast growth in the cloud business that helped ignite a buying frenzy Friday that drove up market values by nearly $139 billion in 30 minutes.

The stunning growth of the cloud businesses at Amazon.com Inc. [stckqut]AMZN[/stckqut] Microsoft Corp. [stckqut]MSFT[/stckqut], and Google parent Alphabet Inc. [stckqut]GOOGL[/stckqut] were a relatively small part of the strong quarterly results the three companies reported Thursday. But fast growth in cloud revenue, along with relatively stable service prices that helped profit margins during the quarter, gave investors reasons to bet the three giants could maintain their growth trajectories.

Shares of the three companies kept rising Friday, with their combined $147 billion market-value gain topping the value of more than 90% of the other companies in the S&P 500, including nearly every other company selling cloud-based software services.

Source: Tech Rally Is Juiced by Highflying Cloud Business – WSJ

By:
On:
In: Around the web
Tagged:
With: 0 Comments

The online retail giant gave Wall Street some cheer Thursday, posting third-quarter sales that jumped 34% to $43.7 billion. That would have beat analysts’ forecasts even without a $1.3 billion contribution from Whole Foods Market. Operating income, while down 40% year-over-year to $347 million, managed to beat the company’s rather downbeat forecast from the second quarter, the midpoint of which projected a loss of $50 million.

The key question moving forward is how long Amazon’s [stckqut]AMZN[/stckqut] current “investment mode” may last. Wall Street is betting on a sooner than later. Analysts expect record operating income of $6.5 billion next year compared with a projected $3.3 billion this year. But the company is absorbing the huge acquisition of Whole Foods as well as building on its future ambitions for grocery, devices, cloud and quite possibly other areas—such as pharmacies.

Those don’t come cheap. It is worth noting that Amazon’s free cash flow dipped into negative territory for the third quarter if one includes the payments made to cover its capital lease obligations. And now that Whole Foods is factored in, Amazon now employs more than half a million full-time employees. With investors hungry for more profits, that is a lot of mouths to feed.

Source: Amazon’s Profits Don’t Come Cheap – WSJ