The US 30 (underlying Dow Jones Industrial Average) gained 239.2 points, or 1.15 percent, to close at 20977.2 on Tuesday. It rallied for a second straight day as solid U.S. earnings, speculation about U.S. tax reform and reduced chance of a U.S. government shutdown this weekend boosted investor optimism. The April 24’s surge would be largely backed by fundamentals that concerns about the French presidential election became less.
Wall Street rose as angnsts over France’s election waned and investors cheered earnings from Dow components such as McDonald’s Corp (MCD.N), up 5.6 percent, and Caterpillar Inc (CAT.N), up 7.9 percent.
Global markets built on the boost from the prior session in the wake of the first round of the French election, with recent opinion polls showing that Emmanuel Macron would finally win a May 7 run-off vote against far-right and anti-EU candidate Marine Le Pen.
With the fog over European politics dispersing, the announcement of tax reform promised by U.S. President Donald Trump on Wednesday is another critical factor and driver to the rally this week. Trump’s plan to slash the corporate tax to 15 percent is setting up a showdown with House Speaker Paul Ryan, who has called for a tax plan to pay for itself.
Trump intends to lay out broad tax principles on Wednesday, including reducing the federal corporate tax rate to 15 percent from 35 percent and taking a child-care tax credit into consideration. If the tax reform passes finally, such low corporate rate would make it difficult to find ways to increase revenue or eliminate deductions to offset it, which means a plan wouldn’t be revenue-neutral or permanent.
Cutting the corporate rate to 20 percent would lower federal tax revenue by $1.8 trillion over a decade, while cutting it to 15 percent would decrease revenue by $2.4 trillion, estimated by the Urban-Brookings Tax Policy Center.
The US 30 is currently trading at two-month highs and tends to continue its growth with relatively strong performance showed by indicator of RSI(14), which is above the median line. If we analyse it by drawing Fibonacci retracement, 20977.2 has provided resistance with around 80 percent possibility of continuous growth near term before facing a key resistance of 21168.7.
Chart 1: US30USD Daily
U.S. consumer confidence (120.3), released on April 26, fell from a more than 16-year high in April, but a surge in new home sales to an eight-month high last month suggested underlying strength in the economy despite an apparent sharp slowdown in growth in the first quarter. The housing market continues to look quite good. Consumers also have more jobs and are getting higher wages, so they will likely increase their spending this year,” said Gus Faucher, chief economist at PNC Financial Services Group in Pittsburgh.
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