Benchmarks closed in the green on Friday following optimism that the much awaited Republican tax Bill has now garnered sufficient support from policymakers to enable it to be passed next week. These developments are expected to reduce U.S. corporate tax rates from 35% to 21%, which in turn led all the three key U.S. indexes to hit their best levels ever. For the week, both the Dow and the S&P 500 registered their fourth straight week of gains, while the Nasdaq posted its first weekly rise in the last three weeks.
The Dow Jones Industrial Average (DJIA) increased 0.6%, to close at 24,651.74. The S&P 500 Index (INX) rose 0.9% to close at 2,675.81. The tech-laden Nasdaq Composite Index (IXIC) closed at 6,936.58, gaining 1.2%. A total of 10.7 billion shares were traded on Friday, higher than the last 20-session average of 6.73 billion shares. Advancers outnumbered decliners on the NYSE by a 2.24-to-1 ratio. On Nasdaq, a 2.32-to-1 ratio favored advancing issues. The CBOE VIX decreased 10.2% to close at 9.42.
Corker, Rubio Favor Tax Cut Bill
Following his “no” vote on Dec 14, Republican Senator Bob Corker of Tennessee, shifted to a “yes” vote the very next day. Corker said he has “decided to support the tax reform package,” voting of which will be held next week. Corker said that this bill will help ensure growth in domestic businesses.
Additionally, Senator Marco Rubio of Florida has also decided to support the tax Bill, after child tax credit was expanded. He said “this bill is far from perfect” even after the draft legislation doubled the child tax credit to $2,000 per dependent child, with its refundable part raised from $1,100 to $1,400.
Support from both Corker and Rubio raised optimism that the much awaited Republican tax Bill will be passed by policymakers next week. Optimism surrounding a strong decline in corporate tax rates had a broad-based positive impact on markets.
Both the Technology Select Sector SPDR (XLK) and Health Care Select Sector SPDR (XLV) increased 1.5%. Additionally, the Financial Select Sector SPDR (XLF) rose 1.4% and is expected to gain further in rising tax cut prospects. Some of its key holdings, The Goldman Sachs Group, Inc. (GS – Free Report) and JPMorgan Chase & Co. (JPM – Free Report) advanced 0.7% and 1.4%, respectively. Both the Dow components have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For the week, the Dow, S&P 500 and Nasdaq increased 1.3%, 0.9% and 1.4% following optimism over passage of the tax cut Bill next week and higher rate environment. The Federal Reserve finally increased its benchmark interest rate by a quarter percentage point. The new rate of interest will hover between 1.25% and 1.5%. This marks the fourth rate hike by Fed in a year’s time. Further, central bank officials reiterated their earlier projection of three possible rate hikes in 2018.
According to the latest proposals, the Republican Tax Bill lowers the corporate tax rate to 21% instead of the earlier 20%. Further, the top individual rate would be capped at 37%. Moreover, the new corporate tax slab would be implemented from the next year instead of 2019. This in turn had a positive impact on investor sentiment.
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