Weekly Market Update

COLLEGE ENDOWMENTS MAY BE TAXED

Thursday, April 20, 2017

Congress plans to review the tax-exempt status of U.S college endowments and evaluate how the funds are managed. Colleges and universities, especially those with large endowments, may be expected to reduce tuition, help with student debt, or increase enrollment. The REDUCE Act (Reducing Excessive Debt and Unfair Costs of Education), proposed by Tom Reed, may set strict spending rules on colleges and universities with endowments in excess of $1 billion. Reed also proposed larger tax deductions on donations for scholarships for working-class students than the deductions for restricted gifts. Colleges argue that this may limit the donors' willingness to give.

In Other News

  • The applicability date for the Labor Department's fiduciary rule was pushed from April 10 to June 9, and further delay is possible, especially if Alexander Acosta is confirmed by the Senate as Secretary of Labor. The rule expands the fiduciary definition of investment advice.
  • Treasury yields increased on Monday with the expected nomination of Randal Quarles as the Federal Reserve's vice chair for bank supervision. Quarles, who worked for the Treasury Department, is likely to support bank-friendly regulations that would aid sector growth.
  • The probability of a rate hike at the June FOMC meeting has fallen to 44% from 60% earlier in April, according to a Bloomberg metric. Uncertainty in interest rates, together with North Korean tension and upcoming elections in the U.K and France, adds risks to global markets. This could lead to lower-than-expected growth for the U.S. economy.
  • Concerns are rising regarding the fairness and transparency of student-loan-servicing companies. A federal watchdog is inspecting the companies to ensure that they do not treat past-due borrowers differently based on gender or race.
  • With a 16% student loan default rate, Kentucky ranks second worst in the nation, just above New Mexico. The rate is especially high for the state's for-profit and technical and community colleges. The inability to pay back student debt prevents many from finishing college, leading to a low number of bachelor degree holders in Kentucky.
  • The U.S. Supreme Court may limit the Securities and Exchange Commission's power by imposing a five year limitation on its ability to require disgorgement. Chief Justice John Roberts expressed concern about the government having essentially unlimited power to impose penalties. However, a government lawyer argued that disgorgement is different from other kinds of penalties since it is intended only to ensure that breaking the law is not profitable.
  • Due to tensions between the U.S. and North Korea, the U.S. dollar weakened on Monday and gold prices rose. Other precious metals, including copper and platinum, also increased in value.
  • Bank of America's first-quarter profit increased by 40%. With 29% and 7.4% improvements in fixed income and equity trading revenue, respectively, the performances of both the fixed income and equity sectors exceeded analysts' estimates. JPMorgan Chase and Citigroup also had strong bond trading results.

Rating Agency Update

  • Moody's assigned Aa1/VMIG 1 to the University of Pittsburgh's anticipated Series 2017C Taxable University Refunding Bonds. The outlook is stable.
  • Moody's assigned Aa3 to University of Cincinnati's Series 2017 A&B. The outlook is stable.
  • Moody's assigned Aa2 to University of California's Series 2017 AV-AX General Revenue Bonds. The outlook is stable.
  • Moody's downgraded Northeastern Illinois University's rating to B1 from Ba2.
  • S&P downgraded Immaculata University's rating to BB from BB+. The University's rating is on negative credit watch.
  • S&P assigned AA to Bryn Mawr College's Series 2017 Refunding Bonds. The outlook is stable.