DOW Surges, Again.on Tax Cuts

It looks like those tax cuts in the US may pass the Senate as early as this morning (Thursday night in the US), and this drove the DOW and the NASDAQ to new records. Next should be the infrastructure bills.

What are the moves for the month?

For November, the Dow added 3.8%, its eighth straight month of gains — the longest such streak since 1995, according to FactSet.

The S&P 500 gained 2.8%, also up for eight months in a row, matching its eight-month rally from 2007, and the Nasdaq rose 2.2%.

The year itself has been a blockbuster for stocks, with the three major indexes gaining between 18% and 28% for the year, driven by economic expansion, upbeat corporate profits, lack of competition from other assets and hopes that the Trump administration and Congress will deliver on tax cuts.

What drove the market?

Optimism was building ahead of a Senate vote on a Republican-backed tax bill, which could take place by Thursday evening. On Wednesday, the Senate voted to open a formal debate on the proposed tax changes.

In the latest economic data, jobless claims came in under forecasts in the latest week, while layoffs remained near 45-year lows. Separately, consumer spending rose 0.3% in October, slightly above the 0.2% forecast.


What are strategists saying?

“What had lifted the market in the first part of the year was an ever-improving economy and profitability. It wasn’t about the prospect for tax reform. What you’re seeing now, however, is the next leg where tax reform starts to get baked in. If you bake in what tax reform means, the market doesn’t look pricey,” said Alicia Levine, investment strategist at BNY Mellon Investment Management.

“There are still a lot of details we don’t know, but if the corporate tax rate is moved down near 20%, you’d be adding $10 per share to S&P 500 earnings. If you do that, valuations are not out of whack with what growth rates will be.”