Stocks record close on hopes for tax reform

Stocks ended higher Friday after the Republicans took a step toward achieving tax reform.

The Dow surged 165 points to 23,328, posting another record. The S&P 500 also notched an all-time high, advancing 0.51 percent as financials led advancers. The Nasdaq composite gained 0.36 percent.

The Senate approved a $4 trillion budget measure Thursday by a 51-49 vote. Passing a budget unlocks reconciliation, which enables the GOP to pass a tax bill with a simple 51-vote majority in the Senate. Using the tool removes the need for winning Democratic support, which would likely sink a GOP tax measure.

“The market was very excited about tax reform last year after the election. But come the first half of this year, those expectations dropped. Recently, expectations of tax cuts have started to creep up,” said Rui De Figueiredo, CIO and co-head of the Solutions/Multi-Asset Group at Morgan Stanley Investment Management.

“The Republicans are so on the hook to get something done that those in-party divisions are likely to be resolved in order to get tax reform done,” De Figueiredo said.

Investors have recently seen a higher likelihood of a new tax plan coming from the GOP after the House passed another budget bill earlier this month.

Rising expectations of lower corporate taxes have helped stocks rise to record highs recently, along with strong corporate earnings and solid economic data. The Dow first crossed above 23,000 earlier this week.

“We continue to set new highs and that does put people on edge at times,” said Tom Anderson, chief investment officer at Boston Private.

“We’ve gone a long time without a 5 percent correction. But we continue to be bullish on stocks. We think this stock market is supported by fundamentals,” Anderson said.

Wall Street also looked to corporate earnings on Friday, as General Electric and Honeywell, among others, reported quarterly results. Honeywell reported earnings per share that were in line with expectations while GE posted a big miss on its bottom line.

GE shares dropped 3 percent in early trade and briefly fell more than 8 percent in the premarket.

“Let there be no debate, this quarter was undoubtedly worse than expected,” JPMorgan analyst C. Stephen Tusa, Jr. said in a note Friday. “It is becoming increasingly clear that this is a “workout” of a set of business that are impaired for whatever reason (macro and/or micro) generating essential zero FCF, and management is fighting to salvage value, not a simple restructuring.”

Investors also looked to Washington as President Donald Trump has reportedly completed interviews with all five of the candidates that he’s considering for the role, including current Chair Janet Yellen.

A decision that could potentially even be announced next week, Reuters reported Thursday citing a source familiar with the matter.

Politico reported late Thursday that Trump was leaning toward appointing Fed Governor Jerome Powell as the next head of the central bank.

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