Tuesday, February 6, 2018

Surging Market Spurred by Politics and Tax Reform


About a dozen listed stocks started the DOW Jones Industrial Average (DJIA) in 1896, with only one original company, General Electric remaining of the 30 American conglomerates that make up the DJIA today.  In 2015, Apple was added to the Dow, showing that it is no longer just made up of industrial companies.  
The DOW passed its first 1,000 mark after 77 years, and during 2017 passed that five times over, ending 2017 close to 25,000.  It only took one month for the Dow to increase from 24,000 to 25,000.  If you think that’s impressive, how about the mid-Jan rally increasing 1,000 in only seven days?  The stock market is setting new records right off the bat in 2018, continuing with the rally throughout 2017, market watchers are curious if any slowdown is in sight?
The Effect of Politics on Economic Growth
The DOW has risen 7,000 points since the election of Trump, along with Nasdaq which has climbed about 38%, and the S&P has not declined even 3% since the election in November of 2016.  

Individual companies have shown significant growth such as Amazon (AMZN) which has jumped 65%, Nvidia (NVDA) which is a tech company based in CA that has soared 213%, Netflix (NFLX) is up 80%, Best Buy (BBY) is up 90% and Bank of America (BAC) is up 85%.

Corporate Tax Rate Cut Spurs Market Rally

As promised, the Tax Cuts and Jobs Act was passed before the Christmas Holidays, taking the corporate tax rate of 35% down to 21% with no date for expiring.  In addition to the C-Corporate tax deduction, other pass through companies such as S-Corps, LLCs and Partnerships will also get a 20% tax deduction.  

The reduction of 35% down to 21% equates to a 40% tax deduction for large corporations, which has seemed to set the market soaring.  This has been the longest period of calm in Wall St. history, reflecting the excitement of investors.  Strong economic growth at home and abroad will be boosted even further by the GOP tax reform, especially the reduction in corporate tax rate.
Corporate America is making it clear how they feel about tax cuts.  

Check out our post on How Long Can the Market Sustain its Low Volatility, and contact Great Point Capital for all your trading needs.  

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