Santa Comes Early; Tax Cut Sparks Big Rally On Wall Street
The major indices continued to trade near record highs as 2017 winds down. So far, 2017 is on track to be the strongest year since 2013. The U.S. economy is the largest its ever been in history and continues to grow. Last week, the government said, GDP grew by +3.2% which was the strongest reading in over a year. Moreover, the tax reform bill was passed which should spark even more economic growth in the years ahead. That, in turn, should help corporate earnings continue to grow, which should lead to even higher stock prices.
Remember, even with all this, the Fed still has rates at only 1.5% which is exceptionally low on a historical basis. If the economy and/or the market starts to overheat, one big concern could be tighter monetary policy from global central banks. But that is a long way off.
The psychological wounds of 2008 are still felt by many people so most likely Central Bankers will continue to err on the side of easy money policies. Bottom line, this aging bull market just got a big boost and deserves the bullish benefit of the doubt until we see any significant selling show up.
A Closer Look at What Happened Last Week…
Stocks rallied nicely on Monday after as investors eagerly awaited a vote on the tax reform bill. The latest bill would cut corporate taxes to 21%, which is much lower than the current rate of 35%. In other news, several corporate deals helped lift sentiment. Campbell Soup announced it will buy Snyder’s-Lance for nearly $4.9 billion. Separately, Chocolate giant Hershey said it will acquire Amplify Snack Brands, the maker of Skinny Pop popcorn, for $12 per share. Finally, Oracle said it will buy Aconex — a software company based in Australia — for $1.2 billion.
Stocks were quiet to mostly lower on Tuesday as Congress moved one step closer to approving the tax reform bill. Separately, Apple fell over -1% after Nomura downgraded the tech giant’s stock. CNBC reported that tech has been the best-performing sector this year, rising nearly 40% in 2017.
Stocks closed mixed to mostly lower on Wednesday after Congress passed the tax reform bill. On the economic front, weekly mortgage applications fell -4.9%, while existing home sales hit an 11-year high. After the close, AT&T & Comcast gave $1,000 bonuses to hundreds of thousands of workers which is a big boost of confidence for the economy. Separately, Wells Fargo and Fifth Third Bancorp both raised the minimum wage after the tax bill was passed. Clearly, this will be a big boost to the economy (on multiple levels) and that will translate into stronger earnings and stronger global growth.
Thur & Fri Action:
Stocks rallied nicely on Thursday after more companies pledged to spend and reinvest its savings from the tax bill on higher wages. Even though job growth has been strong over the past few years, the one big missing ingredient has been higher wages. That’s why stocks rallied when, so many companies immediately said they will increase wages immediately after the tax cut was passed.
Stocks were relatively quiet on Friday as investors digested a big week and looked forward to the long holiday weekend. The market will be closed on Monday for Christmas.
Market Outlook: Bulls Are Strong
The bulls are back in control and the market remains very strong. As always, keep your losses small and never argue with the tape.