U.S. stocks rose the most in four months as companies continue to indicate the tax overhaul will boost earnings this year. Treasuries fell with the dollar and gold on speculation Congress will avert a government shutdown.
The S&P 500 Index headed for its first 1 percent gain since August, while the Dow Jones Industrial Average was poised to close above 26,000 for the first time. Semiconductor shares paced gains, taking the Nasdaq indexes to fresh records.
Taxes drove much of the gains. Financials were strong after Bank of America Corp. beat estimates and indicated that it could benefit from the U.S. tax overhaul by reducing pressure to cut future costs. And Apple Inc. climbed after saying it will bring hundreds of billions of dollars back to the U.S. from overseas to invest in jobs and facilities.
“We’re all really trying to figure out the real impact off tax reform on some of the major sectors,” said Jamie Cox, a managing partner for Harris Financial Group in Richmond, Virginia. “Financials in particular have been in the news because you’ve seen some weird things with some of their deferred tax assets being reported in earnings. I think a lot of people misunderstood and don’t understand how the deferred tax assets work, and so they’re seeing these massive charges that the banks are taking as a result of tax reform and they can’t see too clearly into the future about how much the impact on tax reform is going to have on their bottom line three quarters from now.”
The Stoxx Europe 600 Index was down slightly. Support came from the weaker euro, which was dragged down by some verbal intervention from the ECB, while the yen and Swiss franc were among the other major currencies falling against the greenback. Bitcoin dropped below $10,000 for the first time since Dec. 1.
Traders appear to be taking a pause, perhaps questioning the pace of gains in global equity markets since the start of 2018. But money managers still expect the rally to continue – particularly as analysts predict growth of 11 percent in earnings per share over the next two years, according to Bloomberg Intelligence calculations.
“A lot of the move that we’ve been seeing has been just the beginning,” said John Stoltzfus, chief market strategist at Oppenheimer & Co. “It’s hard to quantify, but we see some evidence of bull market bears as well as skeptics of this bull market finally beginning to capitulate. And when that capitulation starts, it’s a process.”
Meanwhile bond investors are mulling the potential for monetary policy in the U.S. to tighten faster than expected, and settling their nerves after last week’s selloff. The notion of a bear market doesn’t seem to have endured — the yield curve steepening barely lasted a day.
Elsewhere, West Texas crude slipped before U.S. government data forecast to show stockpiles fell for a ninth week.