Is the Repatriation of Overseas Assets Helping Push the Market Higher?

When the new tax laws were enacted last November, one of the biggest questions was how effective the incentive to bring assets back to the States would be. There were also questions about how companies would use the cash that was repatriated under the one-time tax break. Now that we are over half way through the year, these questions can be addressed with a certain degree of certainty.

The answer to question one is—the incentive to companies to bring assets back to the U.S. has been very effective. A recent Bloomberg article addressed the subject of repatriated cash and according to investment management firm Invesco, the incentive has brought lots of assets back and there is more to come.

Invesco estimates that $400 billion has already been repatriated and that another $1.5 trillion is destined to be repatriated. I would think that close to $2 trillion in assets being brought back onshore is above most estimates.

As to the second question, how will the companies use the money, the apparent answer is that they are investing the money. The article from Bloomberg focused on Cisco Systems and how it is repatriating $5.7 billion in assets by removing the assets from Deutsche Bank’s asset management arm and bringing it back onshore to be held in domestic assets. There wasn’t any mention of which firm(s) would be getting this business.

With so much at stake, investment management firms are scrambling to put together plans to gather these assets. Companies like BlackRock, Fidelity, Goldman Sachs, and JP Morgan are all aggressive pursuing the repatriated assets.

While the Bloomberg article didn’t address the issue, I had to take the next step and ask if these recently repatriated funds are helping the stock market. The S&P hit a new all-time high on Tuesday and it comes at a time when there are issues to overcome. The ongoing trade disputes haven’t brought the market down—at least not for very long. The ongoing Mueller investigation is producing troubling results that could upend President Trump’s agenda, but the market keeps shrugging everything off.

Could the assets being brought back onshore be propping the market up?

As the assets are brought back, the companies want the money working for them all the time, so I have to believe they aren’t just parked in bank accounts. If a company has a stock-repurchase plan in place, I would think they would be in there buying their own stock anytime it dips below a certain level. Actions such as this would provide a backstop for the market that will keep it from dropping drastically, at least that is my thinking.

I have issued a number of cautious articles over the past year. There are a number of factors that could bring the bull market to an end, but none of them have come to fruition yet. There have been times when the sentiment was too optimistic. There are concerns about a strong dollar causing the trade deficit to increase, the flattening yield curve, inflation concerns with unemployment being so low and possibly causing a sharp increase in wage inflation, and of course the trade disputes. All of these factors have either been brushed off by investors or haven’t had their full impact yet.

As a student of the markets, it is hard to keep being optimistic given the current backdrop, but the market keeps going up for now. There will come a time when this bull market ends—they all do. At some point we will enter another bear market. But for now, with the repatriated cash helping backstop the market, it doesn’t look like a bear market is likely to start anytime soon.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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