The GOP's tax bill hasn't passed yet, but it will if the stock market is any indication. The latter has been propped up all year by the optimism surrounding the potential passage of a tax reform plan, and now it is getting an extra year-end boost on the belief that the moment of passage is at hand.
Press reports indicate the House will vote Tuesday on the compromise plan, which features a cut in the corporate tax rate from 35% to 21% starting in 2018. The Senate vote will eventually follow, and assuming all goes according to the GOP leadership's plan, the president should sign the bill by the end of the week.
Following on the heels of a broad-based advance for the major indices on Friday, the S&P futures are up 10 points, the Nasdaq 100 futures are up 25 points, and the Dow Jones Industrial Average futures are up 157 points.
To be fair, the positive bias isn't all about tax reform. That's a major chunk of it, yet there has been a spate of M&A activity to feed bullish appetites.
- Campbell Soup (CPB) is buying Snyder's-Lance (LNCE) for $4.9 billion or $50.00 per share in cash
- Hershey (HSY) is buying Amplify Snack Brands (BETR) for approximately $1.6 billion or $12.00 per share in cash
- Oracle (ORCL) announced the acquisition of Australian company Aconex Limited for approximately $1.2 billion, net of cash
- Penn National Gaming (PENN) is buying Pinnacle Entertainment (PNK) for $2.8 billion or $32.47 per share in cash and stock; and
- Humana (HUM) is reportedly working with private equity firms to orchestrate an acquisition of Kindred Healthcare (KND)
The M&A activity is icing on the cake of a bull market that keeps getting sweeter for investors. If the S&P 500 futures indication holds, the S&P 500 should be up 20% for the year on the opening push. Six months ago, it was up 8.7%.
The recent gains have fundamental backing, yet they also have been a byproduct of a momentum trade that has been fueled by favorable seasonal factors, friendly monetary policy, sector rotation, and a fear of missing out on further gains.
The fear of being party to a major sell-off in the near term just isn't there. That understanding is transparent in the CBOE Volatility Index, which, at 9.35, is closing in on an historic low as the major indices keep hitting historic highs.
Animal spirits, however, aren't necessarily running wild in the stock market like they are in the cryptocurrency trading markets, which many participants believe are being legitimized by the introduction of bitcoin futures at the CBOE and CME.
Whatever the case may be, there is no denying that bitcoin, cryptocurrencies, and blockchain technology have the market's attention -- for better and/or worse.
For the stock market, it's all better right now. Then again, the stock market hasn't really been sick this year. It has experienced a sniffle here and there, yet it has avoided catching a nasty cold having been immunized by low interest rates, solid earnings growth, and tax reform optimism.