Camelot Portfolios Talking Points

First Quarter GDP Disappoints

As “soft” economic data continues to point a rosy picture, “hard” economic data continues to diverge and paints a differing picture. Last Friday, the US Bureau of Economic Analysis released GDP data for 2017’s first quarter. The actual GDP growth rate was .7 percent, and average estimates from economists forecasted a 1.2 percent growth (Reuters). Domestic markets did not seem to react to this report leaving the S&P 500 losing .19 percent over Friday’s trading (Yahoo Finance). Economists at the start of the year were more optimistic. As the monthly economic data was released, estimates started to contract to the 1-2 percent range (Reuters).

Looking into contributing factors for GDP, personal consumption, private investment, and next exports/imports were expansionary over this quarter. Personal consumption grew .23 percent, private investment grew .69 percent, and net export/imports increased .07 percent (Bureau of Economic Analysis).

Government consumption detracted from GDP by .3 percent. Factors contributing to this decrease were federal consumption decreased .13 percent and State/Local decreased .17 percent (Bureau of Economic Analysis).

Looking forward towards the second quarter, the first estimate by the Federal Reserve of Atlanta points towards a greater increase compared to the first quarter. As of this week, the forecasted estimate for the second quarter is 4.3 percent (Federal Reserve Bank of Atlanta).

 Trump Tax Proposal

A press briefing by the White House staff outlined a proposal to cut corporate and individual taxes. The proposal called for a consolidation of tax brackets from seven to three. The three rates will be 10, 25 and 35 percent, but no income ranges were outlined (CNBC). Corporate tax rate will be cut from 35 percent to 15 percent (CNBC). Elimination of tax deductions with the exception of mortgage interest and charitable contributions (CNBC). There were other details ranging from repatriation of cash, and elimination of estate tax (CNBC).

There were a couple of concerns noted that were not addressed within the proposal. The major one not outlined was a plan to be budget neutral. Other issues not addressed were closing the debt to “manageable levels” (CNBC).  The Trump proposal and congressional proposals will likely be blended and compromised in the end. There will likely be battles between both parties over what is in the bill. It will likely take significant time and effort to create this bill considering the historical accounts when Reagan overhauled the Tax code.

Looking at this from afar, the tax proposal could have a significant impact for US investment. It does likely create meaningful changes for individuals and businesses, but special interests for proposed eliminated deductions could slow down the process.

 Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

References

Bureau of Economic Analysis. Q1 2017 GDP. 2017. 2017.

CNBC. The White House just outlined its tax plan. Here's what's in it. 2017. 2017.

Federal Reserve Bank of Atlanta. GDPNow. 2017. 2017.

Reuters. US first-quarter growth weakest in three years, as consumer spending falters. April 2017. 2017.

Yahoo Finance. S&P 500 Historical Performance. 2017. 2017.

 Disclosure

 The material presented is for use by professional advisors only.  It is intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable.  

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