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A Taxing Proposition

This week saw a little profit taking as valuations, in some sectors, had climbed quite high in recent weeks.  Additionally, volatility showed signs of making a comeback, as might be expected the closer we get to the presidential election in November.  These aren’t signs that things aren’t working, but simply trading activity you might see in more “normal” times.  And in the sense that we are returning to some sense of normalcy, we’re pleased.

Let’s start with the economic news, which for the most part has shown continued improvement. Consumer spending increased to almost 96% of pre-virus levels, up from 81% at the bottom in April. Construction activity actually exceeds pre-pandemic levels at 112% of the pre-virus level after having bottomed out at 62%. Also, good news, the spread of the coronavirus continues to moderate nationwide.

If I’m being honest, the one lingering issue is, and will continue to be, the number of, what we believe to be, temporarily unemployed people. Jobless claims this week remained higher than we’d like which suggests that small businesses, which are the driver of job growth in the U.S., continue to struggle in general. Republicans proposed a “skinny” stimulus package this week which was quickly voted against along party lines. It is fair to say that both sides are completely entrenched and seemingly unwilling to budge before the election, without some economic data which demands otherwise. We remain hopeful that another round of stimulus will come after the election.

As for the red-hot housing market, the chief factor remains historically low mortgage rates. This week mortgage rates plumbed new all-time lows with the thirty-year mortgage falling to 2.86%. As a measure of comparison, this rate sat at 3.56% this time last year, which we thought at the time was extremely low. Clearly, these low rates have ignited robust purchase demand activity, which is up 25% from a year ago and has been growing at a double-digit rate for the last four consecutive months.

In company news, UPS announced it is hiring 100,000 seasonal workers in the coming months. This should help with the aforementioned unemployment situation. In other news, Amazon announced it will stop shipping seeds from China after, as many as 20,000 seed packets, were mysteriously delivered to unsuspecting customers this summer. The USDA has asked people not to plant these seeds. I’m sure there is one seedy individual behind all this. General Motors is fighting back, after having fallen behind in the electric vehicle (EV) market. This week it announced a strategic partnership with Nikola, perhaps the next Tesla if you believe the hype. Nikola’s claim to fame is its hydrogen fuel cell long-haul eighteen-wheel trucks and more recently a pickup truck, rivaling Rivian and Tesla, that GM will engineer and build. This could breathe new life into this oldest of car manufacturers.

In closing, I want to share with you something you may not know.  The New York Stock Exchange, while physically residing on Wall Street in Lower Manhattan, has its operations in northern New Jersey.  That’s right, all the computer servers and trade routing is done to data centers in New Jersey.  Why is this important, you may be wondering?  This week New Jersey legislators proposed a bill imposing a tax on companies that process large quantities of trades in the state.  Specifically, it would affect any firm processing 10,000 or more financial transactions a year using the electronic infrastructure in the state.  They would pay a tax of $0.0025 on every transaction they handle, including stock, option, futures, and derivative trades.  The NYSE’s Mahwah, NJ data center handles the trading of more than a billion trades per day, according to the WSJ.  If passed, the legislation could bring billions in revenue for the state.  Not pleased with this prospect, the NYSE plans to move its electronic trading systems out of New Jersey to a backup site in Chicago for a week to demonstrate its ability to leave the state.  The date hasn’t been announced, however, we hope this test goes well.  Now you know.

Bruce J. Mason, MBA