S&P 500; US Indexes Fundamental Daily Forecast – Small-Cap Russell 2000 Hits Record on Tax Reform News

The major U.S. stock indexes closed mixed but mostly higher on Thursday with the small-cap Russell 2000 stock index hitting a record high in reaction to the Republican tax reform plan. This indicates that investors believe small-cap stocks will benefit the most from the proposed lower tax rates.

In the cash market, the bench mark S&P 500 Index settled at 2510.06, up 3.02 or +0.12%. The blue chip Dow Jones Industrial Average closed at 22381.20, up 40.49 or +0.18%. The tech-based NASDAQ Composite ended the session at 6451.73, down 1.53 or -0.02%. The small-cap Russell 2000 Index settled at 1488.79, up 3.97 or +0.27%.

The price action in the stock indexes suggests investors are just trying to maintain the upside momentum as they position themselves for the end of the quarter and ahead of the start of earnings season in about two weeks.

Sectors leading the markets higher continued to rotate. Earlier in the week, the rally was supported by strong bank stocks. Mid-week, the upside momentum was fueled by a recovery in technology stocks. On Thursday, materials and real estate stocks supported the rally.

Stock traders showed little reaction to Thursday’s U.S. economic data. In U.S. economic news, the final read on U.S. second-quarter gross domestic product showed a 3.1 percent increase. Traders were looking for a 3.0 percent increase.

Traders said there was little reaction to the news because the results are dated. They have already moved on to the third quarter GDP which could come in lower because of the impact of Hurricanes Harvey and Irma on the U.S. economy.

In other news, Weekly Unemployment Claims came in at 272K, higher than the 269K forecast and 260K previous read.  The Goods Trade Balance improved to -62.9 billion, better than the -65.0 billion forecast. Preliminary Wholesale Inventories came in at 1.0%, worse than the 0.4% estimate.

The decline in the Goods Trade deficit was attributed to weaker imports. This likely means the August Trade Deficit will be slightly smaller. Inventories, for their part, increased in a sign that companies expecting rising sales in the months ahead. This should bode well for stocks.

Looking ahead, the smaller August trade gap will also help boost third-quarter GDP.

Rising inventories aren’t necessarily a bad thing. They could be interpreted to mean that businesses expect strong demand for their products and services.