U.S. Stocks Explode Ahead of Anticipated Tax Reform Bill
U.S. stocks broke out to all new highs on Monday, as investors cheered the imminent passing of a landmark tax bill before the holidays.
Stocks Hit Record Highs
All of Wall Street’s major indexes rose to new highs at the start of the week. The Dow Jones Industrial Average climbed 140.36 points, or 0.6% to close at 24,792.20. That was the index’s 70th record close of the year.
The broader S&P 500 Index gained 0.6% to finish at 2,690.16, with eight of 11 sectors contributing to the rally.
Materials was the best-performing sector, adding 1.5%. Telecommunication services stocks rose 1% as a sector.
The S&P 500’s financials, consumer discretionary and information technology components each climbed 0.8%.
Gains in tech drove the Nasdaq Composite sharply higher. The index rose 0.8% to finish at 6,995.76.
A measure of implied volatility known as the CBOE VIX (NYSEARCA:VXX) rose slightly on Monday, but continued to trade in the single digits. The VIX edged up 1.2% to 9.53, on a scale of 1-100 where 20 represents the historic mean. Wall Street’s favorite volatility gauge continues to trade at less than half its historic average.
Investors Eye Tax Reform
The latest surge in stocks comes ahead of a planned vote on tax reform that analysts say could happen as early as Tuesday. President Donald Trump’s eagerly awaited tax bill is expected to pass before Christmas, giving investors and consumers much needed holiday cheer. Under the new bill, corporate taxes will be cut to 21% from 35%. Individual income tax brackets will also be simplified.
Republican Senators Bob Corker and Marco Rubio came out in full support of the bill on Monday.
Tax reform optimism has been a major rallying point for investors all year long, helping the major equity indexes post double-digit returns. However, opponents of the bill say it will add trillions of dollars to the government’s already bloated deficit. Initial estimates show nearly $1.5 trillion will be added to the deficit over the next ten years as a result of the cuts.
President Trump insists that the new tax measures will provided much needed stimulus, with growth offsetting the loss of government revenue The Trump administration says its policies will produce GDP growth of at least 3% annually.
Deal news from Wall Street also boosted investor sentiment at the start of the week. Campbell Soup announced plans to buy pretzel maker Snyder’s-Lance for $4.87 billion, while Hershey has agreed to purchase Amplify Snack Brands for $1.2 billion.
Disclaimed: The author investors passively in U.S. equities.
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