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While you were sleeping: Tax plan progress lifts Dow

Tuesday 5th December 2017

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Wall Street rose, with the Dow and the S&P 500 both touching fresh record highs, as optimism about the Republican tax reform plan bolstered bank shares at the expense of technology stocks.

In 12.47pm trading in New York, the Dow Jones Industrial Average gained 0.8 percent. However, the Nasdaq Composite Index slid 0.3 percent. In 12.32pm trading, the Standard & Poor’s 500 Index added 0.4 percent.

Earlier in the day the Dow climbed to a record 24,534.04 while the S&P 500 touched a record 2,665.19.

“Financials should benefit from not only tax reform but as we start to see rates move higher, their interest margins become more profitable,” Emily Roland, head of investment research at John Hancock Investments in Boston, told Reuters.

“We’re seeing some rotation away from technology stocks, which is likely due for a breather, into financial stocks and we expect to see that continue,” according to Roland.

The Dow rose as gains in shares of Walt Disney and those of Boeing, recently up 4.9 percent and 2.7 percent respectively, outweighed declines in shares of Microsoft and those of Visa, recently down 2.8 percent and 2.7 percent respectively.

Shares of Walt Disney rose after the Wall Street Journal reported, citing people familiar with the situation, that the company has re-engaged in discussions with 21st Century Fox to purchase some of the media giant’s assets, and Comcast remains in the mix, with deal talks gaining momentum.

In the latest corporate deals, CVS Health agreed to buy Aetna in a deal valued at about US$69 billion, the companies said on Sunday. 

“We are obviously going to get some scrutiny,” Aetna Chief Executive Officer Mark Bertolini said Sunday, according to Bloomberg. “We are prepared to deal with whatever comes along to make this work.”

Investors aren't so sure. Shares of Aetna slipped, trading 0.6 percent at US$180.19 in 12.54pm trading in New York, while those of CVS traded 4.9 percent weaker.

The assumption is that next year’s CVS earnings will be less than Wall Street currently foresees, Gabelli Funds portfolio manager Jeff Jonas told Reuters.

Strategically, Jonas noted, the deal has growth opportunities in its long-term plan to drive customers into CVS’ MinuteClinics and offer more health services there. “Financially, though, it’s really a stretch,” he said.

In Europe, the Stoxx 600 Index finished the day with a 0.9 percent advance from the previous close. Germany’s DAX Index rallied 1.5 percent, while France’s CAC 40 Index gained 1.4 percent, and the UK’s FTSE 100 Index increased 0.5 percent.

British Prime Minister Theresa May and European Commission President Jean-Claude Juncker failed to reach a Brexit deal in Brussels on Monday. 

“It was not possible to reach a complete agreement today,” Juncker told reporters, according to Bloomberg, adding that talks will resume this week and he’s confident there will be a agreement that paves the way for trade talks to begin.


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