The euphoria surrounding the new tax legislation is pushing Wall Street to new heights this year. After hitting 2,700 on the second trading session of the New Year, the S&P 500 breached another milestone of 2,800, for the first time.
Moreover, the Dow Jones also crossed the 26,000 mark, easily setting the record for the fastest 1,000-point rise in its history after topping 25,000 on Jan 4.
Buoyancy Flowing
The massive $1.5-trillion tax cuts will create an economic surge both domestic and international, boosting job growth and earnings of corporates. Additionally, jump in oil prices, a weak dollar and rounds of upbeat economic data added to the strength. Manufacturing activity, as measured by the Institute for Supply Management, climbed to the second-highest reading in six years while construction spending hit record highs in November with broad-based gains in both private and public outlays. Meanwhile, retail sales rose for the fourth consecutive month in December, capping the strongest year of sales growth since 2014.
The market is anticipating that companies will come up with big gains in earnings and increased estimates for this year driven by tax cut savings. The Q4 earnings season is off to a strong start, with earnings of 26 S&P 500 companies that have reported results, up 13.6% from the same period last year on 9.1% higher revenues, with 73.1% beating EPS estimates and 80.8% beating revenue estimates. Overall, total earnings and revenues are projected to grow 9.2% and 7%, respectively.
However, the rally fizzled out later in yesterday’s trading session on concerns over the possible government shutdown. This represents the second drop so far this year. Congress needs to pass a spending bill by the end of Jan 19 to avoid a government shutdown. This pullback could be just a pause in the rally as traders took the chance to book some profits after a record run.
Given the bullish fundamentals, the dips might charge up investors to snap up stocks and ETFs on the cheap for outsized gains in the coming weeks.
