Stocks grind to record highs on more tax talk

Alan Valdes
·Alan Valdes

By Alan Valdes, Director of Floor Operations at Silverbear Capital

Just a little talk about tax reform can really move markets. On Tuesday, Treasury Secretary Steve Mnuchin spoke to reporters saying that tax reform may come this year. However, bringing corporate taxes down to the 15% level may not be possible, according to Mnuchin. Traders always suspected that the 15% level was somewhat unrealistic. Wall Street would be happy with any cut down to 20% to 25%.

Such a reduction in the corporate tax rate could fuel the Dow to 25,000 by early Spring. On the flip side, anything above 25% could very well dampen spirits on Wall Street.

Adding to the euphoric mood on the floor, President Trump urged Congress to move forward with tax reform. The President also said, “The biggest tax cut and tax reform program in the history of our country will soon begin. Move fast Congress!” That put the markets on a path to new heights. The Dow Jones industrial Average (^DJI, DIA) closed up 39.3 points to 22,158.18 (a new record). The S&P 500 (^GSPC, SPY), which has already added $2 trillion in value since the election, rose 0.1% to finish the session at 2,498.37. This is within striking distance of 2,500—another milestone for this index.

Traders haven’t been surprised by Apple’s (AAPL) recent selloff. After a new product line is unveiled, the company does sell off 75% of the time. But lest we forget, the stock is up nearly 40% for the year. This move in Apple has weighed on the technology sector (XLK) and the Nasdaq (^IXIC, QQQ), in particular. The index was able to eke out only a small gain and closed up 0.1% to finish at 6,460.19. However, it was enough that all three indexes managed to close at new heights!

Overnight in Asia, Japan, Hong Kong and Shanghai the markets all had small losses. Across the pond this morning in Europe, markets were mixed, with London trading up a small amount and markets on the continent trading down a fraction. This being a Thursday before a quarterly expiration, you can expect to see a bit of volatility. I wouldn’t read much into it thought, as it’s just traders rearranging their portfolios.