Investors Yank Billions Out of Market, Criticism Multiplies

As Congress moved the tax bill forward, investors pulled the highest amount out of equities funds in more than three years, suggesting some investors may see "tax cuts" as already priced in.

According to Bank of America Merrill Lynch, redemptions from equities funds and exchange-traded funds totaled $14.5 billion, the fourth largest on record, and the biggest since August, 2014, just weeks after Brexit, news outlets reported.

Congress voted on the tax bill Wednesday, and it was signed by President Donald Trump on Friday.

For the week ending Wednesday, redemptions from bond funds overall totaled $3.2 billion, the largest in a year. High-yield bond funds were down $5.3 billion, the eighth consecutive week of outflows and the longest streak since the financial crisis in 2008.

"I think the reaction was notable this week, after the tax reform passage. The outflows were remarkable," said Jared Woodard, global market strategist at BofAML. Woodard said investors sold value, small-caps and financials, all "Trump trade" sectors that should benefit from the sweeping tax bill.

US value funds had outflows of $7.8 billion and small-caps lost $5.8 billion, both the largest on record.

"It was exactly the kind of places where you saw big inflows after the US election," he said. Woodard doesn't believe the "buy the rumor, sell the news" behavior is negative for stocks near term, and the market should benefit from "risk on" in January. What it may be a sign of is that investors do not see the big returns some expect from the tax stimulus, Woodard said, CNBC reported.

Not Much Benefit

Nonetheless, Woodard said momentum is positive for the stock market for now. One area that saw inflows was tech, which is a sector not expected to see much benefit from the sharp decline in the corporate tax rate to 21% from 35%.

BofAML's bull and bear indicator has moved further away from the sell signal level of 8.0 and was at 6.1 on weaker high yield flows and less bullish hedge-fund positioning. Investment grade corporate bonds saw inflows of $1.2 billion.

A Montana Democratic Senator up for re-election in 2018 did not mince words in his criticism of the GOP tax bill. "We just passed one of the worst bills that’s ever come in front of the Senate … so you know the country’s seen better days," Senator Jon Tester said Wednesday after the vote, according to The Washington Post.

The tax bill passed both chambers of Congress this week without receiving a single Democratic vote and even lost 12 Republicans in the House of Representatives.

Footing the Bill

Senate Minority Leader Chuck Schumer and other key Senate Democrats blasted the GOP tax legislation one day after President Donald Trump signed it into law, USAToday reported.

The Republican members of congress took a lesson from the president's playbook: Buy extravagantly today, and have someone else foot the bill tomorrow.

Debt is where the analogy to Trump’s bankruptcies begins. This is how the president ran his infamous Atlantic City casinos through a record four bankruptcies. "We know how that story ended—Trump’s casinos were shuttered after years of losses. While the United States cannot, technically, declare bankruptcy, the GOP tax bill promises to saddle the nation with unsustainable debt based on implausible promises," Schumer said.

The GOP tax bill is immensely unpopular with the American public, and for good reason.  According to the Joint Committee on Taxation, a nonpartisan committee of the US Congress, this legislation will cost approximately $1 trillion over the next decade, even after accounting for economic growth. This so-called “tax reform” will not pay for itself; rather, future generations will pay for today’s tax cuts through higher payments on the national debt.

Bill Benefits Trump

Americans deserve to know how much the tax overhaul will benefit President Donald Trump, according to the Washington Post editorial board.

"That it continues to remain in the dark is due, of course, to Trump's refusal to release his tax returns and Congress' complicity in failing to insist on a minimal degree of openness from the executive," the board wrote.

Trump and White House press secretary Sarah Huckabee Sanders have said that Trump cannot release his returns while under audit. However, the Post board noted that the Internal Revenue Service has said that is not the case. The Post noted that president Richard Nixon, in 1973, released his returns while being audited.

The returns would contain information about any possible conflicts of interest or foreign influence. "Evidently, he believes the fallout from the information contained in the returns would be worse than the criticism he receives for withholding them," according to the board.

"I'm not even aware of a single provision in the bill that disadvantages him or his family," said Daniel Shaviro, a New York University of Law tax professor, in Harwell's Post report.

"As long as the facts of Trump's finances and taxes are hidden, they think they can get away with it," the board wrote, referring to Trump's companies. "And sad to say, so far they are right."