The big news Monday was the value of stocks listed on the Standard and Poor’s 500 surpassing $20 trillion for the first time, due to expectations of rising U.S. economic growth and improving corporate profits.
The major market averages continued their assent Monday, led by the Dow Jones Industrial Average, up 142 points or 0.7 percent. Though larger-company stocks received the largest boost from Monday’s rally, the advance was still broad-based, with the Russell 2000 small-company index gaining 0.25 percent and closing at an all-time high. Both the Standard and Poor’s 500 and the Nasdaq Composite rose 0.52 percent. Monday’s gains are a continuation of the rally that began Thursday after President Trump said he would unveil a “phenomenal” business tax package very soon.
According to Credit Suisse, smaller companies like those that make up the Russell 2000 have less access to international tax loopholes. As a result, smaller companies typically have to pay a 32 percent effective tax rate, versus the larger companies that make up the S&P 500 (a roughly 26 percent rate). For this reason, may investors believe smaller companies will benefit more if President Trump is successful in convincing congress to lower the corporate tax rate from 35 percent, the highest rate of any developed nation.
Investors appear to be anticipating the U.S. economy heating up in the coming months by how they are investing today. The top-performing sectors Monday were led by the Dow Jones U.S. Basic Materials index, up 1 percent, followed by the Dow Jones U.S. Financial index gaining 0.92 percent. These sectors appear to be anticipating inflation, which includes not only rising commodity prices, but rising interest rates, as well.
This week the top-performing commodities were led by the S&P GSCI Unleaded Gasoline index, up a staggering 16.54 percent over the past five trading days, followed by the S&P GSCI Wheat index, higher by 10.53 percent.