Economist's Insights

Today’s Trading Activity – Markets Flinch at Possible Phase-In of Corporate Rate Cut

Oct 30, 2017

Monday’s news cycle was dominated by the indictments of several individuals previously involved in President Trump’s campaign or administration in one capacity or another. The charges were brought about as a result of FBI Special Counsel Mueller’s probe into Russia’s interference in the 2016 presidential election. And while the latest twists and turns in that investigation have potential implications for the administration and its agenda, it was a buried headline on tax reform that appeared to create Monday’s pivot point for U.S. assets. At 10:19 a.m. CT, a headline hit the wires that suggested the 15% corporate tax rate cut (from 35% to 25%) could be phased in through 2022 as opposed to being fully effective upon enactment. That was also the exact time that U.S. stocks and Treasury yields made their sharpest move. The S&P tumbled as much as 0.5% following the report before recovering to end down 0.3%. The Dow performed slightly worse while the Nasdaq was essentially unchanged. The 10-year yield’s slide slowly continued throughout the day and ended down 3.8 bps at 2.37%. The 2-year yield dropped 1.4 bps to 1.57%. The Dollar, which was already weaker on a recovery in the Euro, extended its daily decline and finished near its daily lows. Tax reform remains one of the biggest current market stories, and any leaks about details on the progress have the potential to create such volatility.