Before The Bell
After apparently succumbing to the old Wall Street adage of buying on the rumor and selling on the news, the stock market clearly righted the ship yesterday. On point, after back-to-back sessions in which news of the passage of the major tax reform effort by the Republican-controlled Congress had led to some minor profit taking, the market got out of the gate quickly yesterday morning and was able to fashion a wire-to-wire win. In all, the Dow Jones Industrial Average, off nominally on Wednesday, bounded ahead to a 125-point gain and to near another all-time high in the first minutes of trading.
The Dow was not alone, however, as the tech-heavy NASDAQ pushed ahead by more than 30 points in the early going, with the advance extending to the S&P Mid-Cap 400 and the small-cap Russell 2000. The broad-based buying also enabled about twice as many stocks to rise as fall on the day at that early time. The buying seemed to follow news that some companies had said that they would spend a portion of the savings stemming from lower corporate tax rates on higher wages and new capital spending projects, which would presumably lead to more hiring and added wage improvement.
Already, in fact, AT&T (T - Free AT&T Stock Report) and Boeing (BA - Free Boeing Stock Report), with the latter being the best performing stock in the Dow during this fast-closing year, have announced higher pay and/or bonuses for their workers. That encouraged investors as it would seem likely to invite additional equity buying by traders looking for some signal that the tax deal, which is not overly popular among the public, would gain some adherents following such action. Also, investors continue to be encouraged that the new corporate rate, which will go down from 35% to 21%, will engender further earnings growth.
Clearly, the so-called Santa Claus rally is alive and well this year. Moreover, given the solid Black Friday results, the added rise in the stock market over the past few weeks, and the lower tax rates, there is every reason to believe that holiday spending will be up to par this year. Shopping results should be out within weeks. So, stocks rallied further as the day wore on, although there was some incremental slippage later on in the session. Still, not all the news was good, as shares of electric utility PG&E Corp. (PCG) dropped 14% after the company suspended its dividend.
Otherwise, the stock market continued to press forward during the middle of the afternoon, if not dramatically so, with, at least, sufficient strength to keep the leading averages all in the green. Still, some modest profit taking did take hold during the last half hour, or so, and as we concluded the session, the Dow had trimmed its gain to 56 points, while the S&P 500 and the NASDAQ were better by just five and four points, respectively. Somewhat better performances were seen by the smaller-cap indexes. As before, rising stocks led falling equities on the Big Board, but by a narrower 17-to-11 count at the close.
Looking out to the conclusion of this five-day period, we see that the major indexes were trading somewhat mixed in Asia overnight, while in Europe, the early read this morning on the principal bourses is a bit weaker. Elsewhere, oil, up at a three-week high yesterday, is trading down slightly now, and interest rates, off of recent highs in the latest session, are trending along a flat line this morning. Meanwhile, U.S. equity futures are showing early gains after a positive session yesterday, on relief that a short-term spending deal has been reached by Congress. Finally, we want to wish all of our readers the happiest and healthiest of holiday seasons.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
