Stocks Boosted as Investors Regain Confidence in Trump Tax Plan

U.S. equity markets rose on Tuesday as investors regained confidence in the “Trump Trade” after digesting a slew of economic data and political testimony on Tuesday. The three major indexes posted their fourth straight winning session after posting their biggest losses of the year last Wednesday.

In the cash market, the bench mark S&P 500 Index settled at 2398.42, up 4.40 or +0.18%. The blue chip Dow Jones Industrial Average closed at 20937.91, up 43.08 or +0.21% and the tech-based NASDAQ Composite ended the session at 6136.87, up 3.25 or +0.05%.

The Dow was supported by strong gains in Goldman Sachs. The NASDAQ Composite closed higher despite weakness in Apple.

Also helping to support the markets is President Trump’s first foreign trip. It appears to have gone off without a hitch and it included a large arms deal with the Saudi’s, which helped boost defense sector stocks. Investors said the fact that the political turmoil in Washington seems to have been contained, also helped underpin stocks.

Investors also reacted to the White House’s proposed budget for next year. It showed the White House is seeking to cut federal spending by $3.6 trillion over the next 10 years. The budget also assumes the administration will be able to lower taxes for businesses and households.

The potential for lower taxes for businesses and households is what got investors excited and back to thinking about the possibility of Trump eventually implementing his economic agenda, which contains tax reform.

U.S. Economic News

In economic news, new home sales fell 11.4 percent in April to a seasonally adjusted annual rate of 569,000. Economists and traders were looking for 1.5 percent decrease to 610,000 units.

Flash Manufacturing PMI came in at 52.5, below the 53.2 forecast and 52.8 previous read. Services Flash PMI was 54.0, higher than the 53.3 forecast and the upwardly-revised 53.1 previous read. The Richmond Manufacturing Index disappointed investors with a read of 1, well below the 15 read.

Also on Tuesday, Federal Reserve Bank of Philadelphia President Patrick Harker said June “is a distinct possibility” for the U.S. central bank’s second interest rate increase of 2017. He also reiterated that Fed balance-sheet unwinding will probably start this year, while emphasizing that the process would be gradual and predictable. “It will be the policy equivalent of watching paint dry,” he said.

Harker also gave an optimistic reading of the economy and the outlook but told reporters that another downside surprise on inflation would “worry me a little bit.”