Modupe Gbadeyanka
By Investors Hub
The major U.S. index futures are pointing to a higher opening on Thursday following the mixed performance seen in the previous session.
Early buying interest may be generated amid optimism about the outlook for tax reform after Senate Republicans cleared a key procedural hurdle.
The Senate voted 52 to 48 along party lines to begin formal debate on the GOP tax reform bill after negotiations convinced Republican holdouts to vote for the legislation.
The approval of the procedural motion sets the stage for a final Senate vote on the tax reform bill later this week, although some issues still need to be resolved.
Stocks turned in a mixed performance during trading on Wednesday following the broad based rally seen in the previous session. While the Dow climbed to a new record closing high, the tech-heavy Nasdaq showed a sharp move to the downside.
The major averages ended the day on opposite sides of the unchanged line. The Dow climbed 103.97 points or 0.4 percent to 23,940.68, the Nasdaq plunged 88.02 points or 1.3 percent to 6,824.34 and the S&P 500 edged down 0.97 points or less than a tenth of a percent to 2,626.07.
The pullback by the Nasdaq was partly due to profit taking, as traders cashed in on recent strength among tech stocks amid concerns the companies won’t see as much of a benefit from proposed tax reform.
Semiconductor stocks showed a particularly steep drop, dragging the Philadelphia Semiconductor Index down by 4.4 percent. The index pulled back further off the record closing high set last Friday.
Micron Technology (MU), Lam Research (LRCX), and Applied Materials (AMAT) turned in some of the semiconductor sector’s worst performances on the day.
Electronic storage, software, and internet stocks also saw significant weakness within the tech sector, moving lower along with gold stocks.
On the other hand, transportation stocks showed a strong move to the upside, adding to the gains posted in the previous session. The Dow Jones Transportation Average surged up by 3.3 percent to a record closing high.
Expedia (EXPD), CSX Corp. (CSX), Southwest Airlines (LUV), and Norfolk Southern (NSC) posted standout gains on the day.
Banking stocks also extended the rally seen on Tuesday, driving the Dow Jones Banks Index up by 2.6 percent. The index reached its best closing level in almost ten years.
The continued strength among banking stocks reflected optimism about tax reform as well as Federal Reserve Chair nominee Jerome Powell’s comments calling financial regulations “tough enough.”
The mixed performance on Wall Street came as traders digested outgoing Fed Chair Janet Yellen’s testimony before the Congressional Joint Economic Committee, which further solidified expectations the Fed will raise interest rates next month.
In prepared remarks, Yellen said economic growth appears to have stepped up from its subdued pace early in the year.
“The economic expansion is increasingly broad-based across sectors as well as across much of the global economy,” Yellen said.
She added, “I expect that, with gradual adjustments in the stance of monetary policy, the economy will continue to expand and the job market will strengthen further, supporting faster growth in wages and incomes.”
Yellen noted inflation has continued to run below the Fed’s 2 percent target but said recent lower readings on inflation likely reflect transitory factors.
“With the minutes from the Fed’s November meeting revealing that most officials still share Yellen’s view that the recent weakness of inflation will prove transitory, a December rate hike still looks the most likely outcome,” said Andrew Hunter, U.S. economist at Capital Economics.
On the U.S. economic front, the Commerce Department released a report showing stronger than previously estimated economic growth in the third quarter.
The report said real gross domestic product surged up by an upwardly revised 3.3 percent in the third quarter compared to the originally reported 3.0 percent jump. Economists had expected the increase in GDP to be upwardly revised to 3.2 percent.
With the bigger than expected upward revision, the GDP growth in the third quarter is now stronger than the 3.1 percent increase seen in the second quarter.
A separate report from the National Association of Realtors showed a much bigger than expected increase in pending home sales in the month of October.
NAR said its pending home sales index surged up by 3.5 percent to 109.3 in October after dipping by 0.4 percent to a downwardly revised 105.6 in September. Economists had expected pending home sales to climb by 1.0 percent.
A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.
