The US markets closed higher on Monday, with major indexes ending at records, on growing confidence that congressional Republicans will succeed in passing tax-cut legislation as early as this week. Treasury Secretary Steven Mnuchin said he has no doubt that the GOP’s tax bill will make it to the desk of President Donald Trump this week. Optimism that the Republicans will have the votes they need for passage built last week after two holdouts, Sens. Bob Corker of Tennessee and Marco Rubio of Florida, pledged their support for the tax overhaul. However, there remains a slim 52-48 Senate Republican majority. Sen. John McCain of Arizona is expected to miss the vote as he’s returning to his home state for physical therapy and rehabilitation linked to a brain tumor that was diagnosed over the summer. Among other changes, the bill would lower the corporate tax rate to 21% from 35%, which would serve as an immediate boost to earnings. That could serve as a tailwind to equity prices, although experts are split on whether it would result in more hiring or higher wages.
Meanwhile, Minneapolis Federal Reserve Bank President Neel Kashkari said that he voted against the Fed’s decision to raise interest rates last week over worries on weak inflation and a flattening of the yield curve. Kaskhari has dissented from all three of the US central bank’s decisions to raise interest rates this year and had previously cited inflation as his chief concern. The Fed was entering a delicate phase in its tightening cycle, Kashkari said, and raising interest rates in such an environment could hold down wage growth and increase the risk of a contraction in economic activity. Regarding the yield curve, he added that the Fed’s decision to raise interest rates amid low inflation is likely holding down the long end of the curve by depressing inflation expectations.
On the economy front, the National Association of Home Builders’ monthly sentiment index surged five points to 74 in December, its highest reading since 1999. In November, the sub-index of current conditions rose four points to 81, while the gauge of future sales rose three points to 79. The sub-index that tracks buyer traffic jumped eight points to 58, its highest since 1998. Builders seem to be in a sweet spot. The economy is supporting a strong pace of home sales, and the tax overhaul that seems likely to become law should boost profits.
The Dow Jones Industrial Average added 140.46 points or 0.57 percent to 24,792.20, the Nasdaq gained 58.177 points or 0.84 percent to 6,994.76, and the S&P 500 edged higher by 14.35 points or 0.54 percent to 2,690.16.
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