More record highs for the major averages as Washington moves closer to a tax reform deal. The Russell 2000 and the S&PSmall Cap indexes were the star performers, climbing 2.7% and 3.3%, respectively, as tax reductions, if they ever come, will have a more favorable effect on smaller companies. While the Dow – up 0.25% – failed to post a record his week, the S&P 500 and the NASDAQ enjoyed new high ground. However, the Dow Jones Industrials finished the month of September with a respectable gain of 2.1%, led by large industrial names like Caterpillar and Boeing. JPMorgan Chase also chipped in for the month with a gain of 5%. For the past five trading sessions, all but utilities were in positive territory with energy, financials and technology in the lead. Transports were also sought after with a weekly advance of nearly 2.2%. And oil moved into bullish territory as West Texas sweet crude settled at its highest level since May at $51.67/bbl.
The GOP tax plan calls for reducing the number of individual tax rates to three: 12%, 25% and 35%; doubling the standard deduction; eliminating the estate tax, the alternative minimum tax and the deductions for state and local taxes. It would also cut the corporate tax rate from 35% to 20%. If this plan eventually passes the House and Senate, however, is still in question, but it appears to have the backing of the White House.
With the market’s price/earnings ratio above its five-year average, a solid third quarter earnings performance may well be needed to maintain the bullish momentum. Even if tax reform fails to get passed, the outlook for corporate America remains strong with estimates for upcoming earning’s growth for the S&P 500 holding at 4.2%. And 10% growth is possible for 2018, even under the current tax rules. Conclusion: The market is indeed extended. But in the absence of compelling reasons to sell, there could still be a path to higher prices and dividend increases will help spur decent total returns, as well.
Here is the answer to last week’s trivia question: The largest stock exchange in Canada is? Montreal Stock Exchange, NASDAQ Canada, Toronto Stock Exchange or Canadian Securities Exchange? Answer: The Toronto Stock Exchange, a division of TMX Group, and is the ninth largest in the world.
Today’s Trivia Question: Alphabet, Inc. (formerly Google) was originally incorporated in Menlo Park, CA on September 4, 1998. The company went public on August 19 of what year? 1999, 2002, 2004 or 2007.