US tax cut outlook propels stocks
NEW YORK: The major US stock indexes hit record highs in a broad rally yesterday as the long-awaited bill to lower taxes looked set to be passed into law and buoyed by about $11 billion in corporate dealmaking. More US Republican Senators on Sunday said they expected Congress to pass the tax bill this week, with a Senate vote set for today and President Donald Trump expected to sign the bill into law by the end of the week.
US stocks have enjoyed a near year-long rally, of late powered by increasing expectations of the promised tax overhaul, which aims to lower corporate taxes to 21 percent from 35 percent, coming to fruition. The benchmark S&P 500 has gained about 20 percent so far in 2017, set for its best year since 2013, as investors bet that lower taxes could boost corporate profits and trigger share buybacks and higher dividend payouts.
“The market is going to continue its rally based on the belief that we’re going to see the Congress pass tax reform,” said Robert Pavlik, Chief Investment Strategist at SlateStone Wealth in New York. “People are a bit wary about how long the rally will last, but earnings continue to grow, (the) tax package should help and the economy is doing well,” Pavlik said. “I’m very positive about the overall market.”
The pan-European Stoxx 600 index was up 0.9 percent, less than 2 percent off a two-year high hit at the start of November.
Germany’s DAX index rose 1.6 percent, with the UK’s FTSE 100 up 0.4 percent.
With little in the way of major economic data this week, the tax bill was likely to remain in focus for stock market investors, according to Mike van Dulken, head of research at Accendo Markets.
“Ahead of bill being signed into law, any more updated guidance from US corporates, showing potential earnings improvement from the reform, will be closely watched,” he said. The dollar index fell 0.2 percent against a basket of major currencies, however, with strategists saying forex traders had adopted more of a wait-and-see attitude to the bill.
Portugal in demand
In fixed income markets, Portuguese bonds were the stand-out performers, with yields hitting their lowest since early 2015 after an unprecedented two-notch sovereign credit upgrade from Fitch.
Friday’s shift means the country now holds an investment grade from two of the three major rating agencies and could soon return to major bond indices. Portugal’s ten-year bond traded decisively below its Italian equivalent yesterday. The last time it did so for a sustained period was in early 2010.
“There is very much a shift in the architecture in the European government bond market,” said DZ Bank rates strategist Daniel Lenz.
Futures of soaring cryptocurrency bitcoin received a lukewarm reception at their launch on the CME Group exchange late on Sunday. The front-month contract dropped as much as 6 percent before recovering to trade up 1.3 percent.
Indian stock markets opened weaker, with the 50share NSE index down almost 2 percent as early trends showed a close contest in Gujarat.
But stocks reversed the losses later - the 50-share NSE index was trading up 0.7 percent at 0455 GMT.
The partially convertible rupee was trading at 64.32/33 to the dollar versus its previous close of 64.04. The rupee had dropped to a low of 64.74 in early trade.
Oil prices rose amid an ongoing North Sea pipeline outage and as a strike by Nigerian oil workers threatened the country’s crude exports. — Reuters