Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long…

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Have you received your tax refund yet?

Chances are good that if you were owed a refund, your return has been delayed. The government shutdown caused the IRS to furlough workers during some of the most important weeks for processing tax returns. And it’s taking the agency time to catch up.

So even if you were responsible and filed your tax return well ahead of the crowd, you may still be waiting on your refund check.

That’s the bad news.

But today, I want to show you why this delay could actually lead to a much bigger check for you.

In fact, whether you’re expecting a tax refund or you’ve got to write that dreaded check to Uncle Sam, this tax refund delay can help you capture some unexpected wealth.

Let’s take a look!

The New Tax Rates Delay Refunds

There’s been a lot of talk about tax refunds recently thanks to the new tax bill that went into law last year.

The new tax bill lowered the tax rate for most Americans, but also made major changes to what deductions families and individuals can make.

We’ve talked about many of these changes here at The Daily Edge, including the lower withholding rates that have allowed Americans to keep a larger portion of every paycheck throughout the year.

Now that it is time to turn in your tax return for 2018, many of those changes are under scrutiny.

I’ve become keenly aware of these issues in part because my brother is an accountant and is currently up to his neck in personal and small business tax returns. I got a chance to see him over the weekend and he was exhausted. It’s been a stressful year as he has had to work extra hard to make sure that all of the changes are being taken into account for the tax returns he prepares.

“Zach, it’s not just that the IRS was essentially closed for a couple of months. It has also taken extra time for many of the software platforms that we use to update all of the new changes.”

So these are two big issues that are causing a delay in the tax refunds Americans would typically be receiving this time of year.

First, the IRS was closed, causing a pileup in the number of returns waiting to be processed.

And second, individuals and business are taking more time to actually file their return because it is taking some time to handle the changes from the new tax bill.

This has had a pronounced effect on retail spending in the United States, which in turn is setting up an interesting opportunity for investors.

Delayed Spending Boosts Spring Profits

Wall Street has been a bit frustrated with how the delay in tax refunds has affected spending in the United States.

You may have heard that recent reports on total retail sales have come in a bit weak. And those “weak” readings have naturally sent some retail stocks lower. After all, Wall Street is worried that lower tax returns could lead to disappointing profits for retailers.

But here’s the thing…

Those tax refunds aren’t “gone.” They’re just taking a little longer to work their way through the system.

Which means American consumers will still be spending the cash that they get back from Uncle Sam.

The spending may have just been deferred from February and March to heavier spending in April and May.

So what does that mean for us here at The Daily Edge?

Well I’m expecting those refund checks to drive surprisingly strong retail sales in this new second quarter of 2019. And I expect those strong sales to catch Wall Street investors off-guard.

Over the past couple of months, a few key retail stocks have been stuck in a holding pattern waiting for good news to hit.

Shares of Wal-Mart Stores (WMT) for example are trading at the same level from late January. And shares of popular retailers like Target Corp. (TGT) and TJX Companies (TJX) have just barely made back losses from late in 2018.

The stock prices for these retailers are being held back in part because many taxpayers haven’t yet received their refunds. And so they’re not in a rush to head out and spend that cash.

But this month, as accountants wrap up their customers’ tax returns and the IRS catches up on its inflated workload, we should see tax refunds making their way to retailers around the country.

And as these retailers start reporting strong spring sales, stock prices will be poised to jump higher.

If you’re one of the forward thinking investors who owns shares of these retailers, you’ll be in prime position to profit from a jump in sales.

So as we head toward the April 15th tax filing deadline, make sure you are positioned to profit from all of those shoppers who will be taking their checks to spruce up their spring wardrobes!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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Wall St. Doesn’t Care About 800,000 Workers

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Today marks the 27th day of the government shutdown.

In total, 800,000 Federal employees missed their first paychecks last week. And another 1.2 million government contractors are also estimated to be missing paychecks as well.

That’s 2 million Americans currently out of work and not collecting paychecks!

This boils down to a large portion of America’s middle class at risk of missing mortgage payments, student loan payments, and even spending less on necessities like food and clothing.

This is a big deal!

But for some reason, Wall Street seems not to care… So what gives???

Wall Street’s Eyes are Focused Elsewhere — Not on the Shutdown

The government shutdown is definitely a frustrating experience regardless of which side of the political arguments you find yourself on. The back and forth rhetoric from both parties is exhausting.

But while I don’t mean to dismiss the very real challenges that come with the government shutdown, one thing you need to realize is that as of now, Wall Street is NOT fazed by the current gridlock in Washington.

In fact, since the shutdown officially began at midnight on December 22nd, the S&P 500 is higher by 8.17%!

Seriously, this has been quite an impressive rebound with hardly any down days in the 15 trading days we’ve had since the market bottomed. That’s great news for investors — and hopefully you’ve been taking advantage of the sharp move higher.

But this begs the question — how can stocks go higher when 2 million people are potentially now struggling to pay their bills?

It’s simple.

The key issue that Wall Street is focusing on this week is not the government shutdown… It’s not the trade war with China… And it’s not even additional interest rate hikes from the Fed.

Don’t get me wrong, those things are important, but right now they’re taking a back seat to one driving force…

The REAL Reason Stocks are Moving Higher Despite 2 Million People Not Collecting Paychecks

Earnings season!

This week, we’re starting to see some of the biggest earnings reports come in — from big financial firms like the money center banks, from retail firms, from industrial companies with international customer bases, and of course from a myriad of smaller stocks that represent smaller businesses here in the U.S.

And so far they’ve been stronger than expected!

Take the big banks for example. Goldman Sachs (GS) generated $6.04 per share in profit for the fourth quarter of 2018 versus the $4.45 per share estimated by Refinitiv. While Bank of America (BAC) posted earnings of $0.73 per share vs $0.63 estimated.

This caused both stocks to spike after the reports were released.

In addition, major airlines like United Continental (UAL) and Delta Airlines (DAL) also reported blowout 4th quarters in the face of a stock market pullback. United’s revenue for each passenger it flies a mile, a key industry metric, rose 5 percent from 4Q 2017 and Delta’s revenue per mile rose by 3.2 percent.

This is the real reason why stocks are moving higher during such an unfortunate time.

Trust me, I feel for those 2 million employees that haven’t collected a paycheck since the government shutdown started.

But in the long run, stock prices are determined by earnings. And this strong first week of earnings season far outweighs any temporary negatives that come with a government shutdown.

That’s why even as this government shutdown rolls on, I recommend that if you have the extra funds to spare, you continue allocating money towards stocks. Plenty are still on sale after the volatile last few months. And as earnings season continues, the market should respond positively to strong and growing earnings from our healthy corporations.

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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Volatility Holds the Key to Markets in 2019

This post Volatility Holds the Key to Markets in 2019 appeared first on Daily Reckoning.

Over the last two weeks, after making good on the four-rate interest hike of 2018, Fed Chairman, Jerome Powell, became more dovish to start 2019.

His change in tone is worth considering because of his historical stance on reducing the amount of artificial stimulus coming from the Fed. Last week, after the required five-year holding period for Fed transcripts were up, we got a glimpse into Powell’s thoughts from 2013, before he was Chairman.

Powell tried to persuade then-Chairman, Ben Bernanke, to reduce the Fed’s stimulus, even though it would lead to greater near-term market volatility. That was when the third round of the Fed’s asset-buying program (QE3) was in full swing. The Fed was purchasing an estimated $85 billion per month mix of Treasuries and mortgage-backed securities.

To indicate that the Fed wouldn’t buy bonds forever, Bernanke floated the idea of slowing down its program, or “tapering,” at some non-defined future date.

Powell, on the other hand, believed the market needed a specific “road map” of the Fed’s intentions. He said that he wasn’t “concerned about a little bit of volatility” though he was “concerned that there may be more than that here.”

Indeed, once Bernanke publicly announced the possibility of the Fed’s bond-buying program slowing down, the market tanked, in a response that became known as a “taper tantrum.” As a result, Bernanke backed off the tapering idea.

Fear of more taper tantrums kept the Fed in check after that. The Fed ultimately waited until it had raised rates sufficiently, before starting to cut the size of its balance sheet. But now Powell is the Chairman. And it seems that he is much less comfortable with volatility than he was under Bernanke, as his most recent remarks indicate.

But it certainly wouldn’t be the first time a Fed chairman has modified his views when he was in control. Alan Greenspan, for example, was a staunch advocate of the gold standard when he was younger (and as presented in Foreign Affairs). But once he was Fed head, suddenly he thought a gold standard wasn’t such a hot idea after all. Go figure.

In the case of Jerome Powell, his new sensitivity to volatility means the Fed will be watching the markets for high volatility that causes sell-offs, even if also espousing their “data driven” mentality. And that he is prepared to act should that happen by backing off the Fed’s current forecast for reducing its balance sheet.

I’ve argued before that the Fed isn’t reducing its balance sheet as aggressively as it would have you believe. And I certainly expect it to dial back even more so in light of the recent volatility.

The reason is obvious.

The main catalyst for the bull market that surfaced over the past 10 years since the financial crisis in 2008 was stimulus that was fueled by the Fed and other leading central banks. This money acted as an artificial stimulant or “drug” to financial asset prices.

The world’s leading central banks have been following the Fed’s lead in withdrawing liquidity. And even though global liquidity really began drying up late last year to a minimal degree relative to its size, it should come as no surprise that markets have threw a tantrum.

Since early October, we’ve seen a lot of price volatility, with several hundred-point daily swings in the markets becoming the norm. Powell calmed the waters with his dovish comments on January 4 and the following week as well. But make no mistake, the waters are still choppy.

Many on Wall Street expect to see more volatility ahead and are forecasting that 2019 will be rocky for the stock market. But others on Wall Street are, in direct contrast, forecasting a continued bull market.

That’s the other driver of volatility — clashing opinions and wildly divergent market forecasts. We haven’t had much volatility in recent years because nearly everyone was on the same side of the bet. That’s all changed now.

To add to the market turmoil, the federal government shutdown has now officially entered its fourth week. It is now the longest shutdown on record. But the shutdown also has real economic ramifications outside of the DC beltway.

First, in a climate where the expansion of business activity is already slowing down, the shutdown is causing economists to further lower first-quarter GDP estimates. That puts a lid on expansion and hiring plans for both psychological and actual risk reasons.

More than 800,000 federal workers have missed paychecks, which means less money to pay bills and purchase goods and services that contribute to the American economy. But that’s not the only problem, although it might seem far more important, especially to those missing paychecks.

From an information standpoint, the state of the economy is tough to predict without data produced by agencies like the Department of Commerce. For instance, farmers, already hurting from trade wars, won’t be able to get key data on figures like monthly international shipments to plan crop schedules.

Then there’s the Federal Reserve itself. Whether you think it should or not be setting interest rates at all, the Fed determines interest rates while considering factors such as market volatility, slowing economic figures and trade wars. The best way to do that is to access real data. Now, business conditions will be hard to gauge accurately if reports aren’t available due to the shutdown.

That means the shutdown will stoke volatility in the markets until an agreement is reached. And when that will be is anybody’s guess right now. No real progress has been made and there doesn’t appear to be an end in sight.

But this week, the markets will be getting new information to digest. The release of fourth-quarter earnings reports will begin with big banks. These will provide more insight into how companies performed during the year-end volatility in 2018.

The corporate earnings outlook on Wall Street is fairly negative. Companies have been managing expectations downward. Apple, for instance, chopped its forecasted revenue figures last month, citing the slowdown in China’s economic growth as a reason for less iPhone sales. Apple stock lost about 10% on the day of the announcement, taking the overall market down with it.

Analysts are now estimating fourth quarter profit growth of 14.5% for the S&P 500 companies. That’s down from the 20.1% they forecast at the start of the quarter. But that could actually be a good thing for share prices.

The lower the bar, the greater the possibility it can be exceeded. There’s more upside potential in that case, in other words. That means if earnings begin to outperform prior forecasts next week, it could very well lift the markets. This tension of negative and positives factors will foster a see-saw of a quarter in the markets mixed with volatility, so being aware and nimble will be the best strategy.

But the volatility could present a great trading opportunity. Wall Street knows that it doesn’t matter if information is positive or negative — there are still ways to profit from the right information.

Something called the Cboe Volatility Index (VIX) is widely considered a “fear gauge.” That’s because it’s supposed to reflect what swings in the S&P 500 index could be over the next month.

The VIX computes its levels based on outstanding options contracts which are supposed to indicate the price that investors, or speculators, are willing to pay for protection against their positions going bad.

Currently, the VIX should be higher than it is. It recently spiked, but then settled down much lower than what the real volatility of the S&P has been this past month.

Usually, options tend to over-price volatility. That’s because people buy options in order to place bets on the future, or to protect themselves from wild swings in share prices. The less certain they are, the more they are willing to pay for that protection.

Yet, right now, the cost of protection is cheap. That’s like your health insurance premium all of a sudden dropping just when you catch a major illness. It doesn’t quite make sense.

That means that while fourth-quarter earnings season reports are emerging, it’s a good time to take advantage of buying these cheap options. Buying them on certain companies can protect you against adverse swings in share prices due to earnings announcements. It’s a form of portfolio insurance. And again, it’s relatively cheap.

That’s one pivotal key to being a great investor — accessing information. Sure, the more insights and information you have, the more overwhelming it can seem. However, if you can stay focused, your portfolio will thank you.

Regards,

Nomi Prins
for The Daily Reckoning

The post Volatility Holds the Key to Markets in 2019 appeared first on Daily Reckoning.

Chris Temple from The National Investor – Thu 10 Jan, 2019

Fed Minutes, The Goverment Shutdown, and The End Of This Market Rally

Chris Temple joins me to breakdown the Fed minutes that were released yesterday. Now very much on pause this will be an important year for the future of Fed direction. Also the government shutdown is fully underway but has not had a major impact of the markets. Overall the strategy for this year will be one of active and value investing.

Click here to visit Chris’s site for more information on his newsletter.

Chris Temple from The National Investor – Thu 10 Jan, 2019

Fed Minutes, The Goverment Shutdown, and The End Of This Market Rally

Chris Temple joins me to breakdown the Fed minutes that were released yesterday. Now very much on pause this will be an important year for the future of Fed direction. Also the government shutdown is fully underway but has not had a major impact of the markets. Overall the strategy for this year will be one of active and value investing.

Click here to visit Chris’s site for more information on his newsletter.