Dow’s ‘Trump Rally’ nears 25,000 mark with tax cuts on horizon

The “Trump rally” raced forward Monday with the Dow Jones industrial average hitting a new high and poised to pass another 1,000-point milestone of 25,000, as investors remained giddy about the likely passage of tax cuts this week.

Analysts said President Trump, the Republican-run Congress and the promise of tax cuts deserved much of the credit for the stock market blastoff, but they also said the solid economy provided the launchpad.

“It seems reasonable to me that most if not all of the gain since Nov. 16 [when the House passed tax cuts] could be attributed to tax reform optimism; everything prior to that I would attribute to very solid fundamentals and a strong economy,” said Randy A. Frederick, vice president of trading and derivatives at Charles Schwab & Co.

The Dow closed at 24,792 after a 140-point gain for the day, already having skyrocketed 5,000 points in 2017, a first in the Dow’s history. Monday also marked the 70th record close this year, a first for a calendar year.

Mr. Trump has cheered on the rally and taken credit for providing a pro-business environment, including an unprecedented rollback of federal regulations.

“President Trump and, equally important, the GOP majority in both houses of Congress are responsible for some of the rise in stock prices since Nov. 2016,” said Gary Burtless, an economist at the Brookings Institution, a left-leaning think tank in Washington.

He noted, however, that the market also had been rising steadily for most of President Obama’s eight years in office, if more slowly.

“There is a reasonably good chance the stock market would also have increased if Hillary Clinton rather than Donald Trump had been elected president,” he said.

“My guess is that the prospect of lower tax rates on corporate income and on the investment income of business owners has boosted stock prices above the level they would otherwise have been in a Hillary Clinton administration,” he said.

The tax cut bill, which is on track to reach Mr. Trump’s desk before the end of the week, has plenty to excite investors. The legislation would slash the corporate tax rate to 21 percent from the current 35 percent and give a one-time tax break for companies to bring home money parked overseas to avoid high U.S. taxes.

Some market watchers have warned investors that the stock blitz is a “buy on the rumor” event and final passage of the tax cuts will result in a “sell on the news” pullback.

Mr. Frederick said such a sell-off likely would be moderate, perhaps a decline of a percentage point or two.

“If you consider recent patterns and the fact that there is little downside in this tax plan for the markets or the economy in the short term, I believe dip buyers would quickly step in and reverse that decline,” he said.

The bigger threat, said Mr. Frederick, would be the “surprise” failure of the tax bill triggering an overreaction of major sell-offs. But “even if the tax bill failed,” he said, “the strong fundamentals of the economy would remain.”

He added: “Remember, only a couple of months ago, tax reform in 2017 was considered a long shot, but the market has been rising all year. But, as I said, I believe this scenario is highly unlikely.”