Wall Street closed mixed on 4th December 2017 after the U.S Senate passed a tax cut bill over the weekend. The Dow Jones climbed to a new record but tech stocks fell sharply, Dow Jones jumped 58 points or 0.2% to 24,290. In contrast, S&P 500 lost 2 points or 0.1% to 2640 and Nasdaq plunged 72 points or 1.1% to 6775.
The Senate passed revisions to the U.S tax code over the weekend after Republicans overcame internal divisions, moving closer to the USD 1.4 trillion tax cut bill. The final vote came out at 51-49 in favour of Republicans. However, Republicans, still need to overcome obstacles for the Senate and the House to craft a joint bill, which will then be presented to President Donald Trump.
Decreasing the Tax rate from 35% to 20% would boost profitability and margins for many of the U.S companies, tax rate cute enthusiasm helped the U.S stock markets to reach new record highs post 2016 U.S Presidential Elections.
In the last one-year Tech and Internet stocks were the markets best performing stocks. However, in the last one-week Tech and Internet Stocks were top losers while stocks that benefit from tax cuts rallied, this divergent trend started in the last week before the passage of Senate’s tax bill.
Tech and Internet stocks have witnessed high selling pressure in last one week due to investors booking profits after a strong performance. Table given below shows the spurt in trading volume in the last 7 trading sessions. Data clearly indicates the tech stocks are being sold due to investors booking major profits and shifting their funds to stocks which have higher existing tax rate. Tech companies have existing tax rate between 20%-24% due to their global sales while rest of the companies pays over and above 25% as tax. Economic growth stocks will benefit the most from the tax rate cuts. Basically, economic growth stocks include stocks from Banking, Retail & Infrastructure sectors, Dow Jones U.S Bank index gained by 8%, S&P 500 Retail index gained by 1.34% and Dow Jones U.S Construction index gained by 3% in the last 7 trading sessions.
Table given below shows the revenue growth (%), net income growth (%) and revenue guidance for next quarter (%). This shows Tech & Internet giants future revenue growth are intact and recent fall in share price is due to short-term momentum trading. Tech heavy Nasdaq index declined in value by 1.7%, Dow Jones gained by 3.25% and S&P 500 gained by 1.63% in the last 7 trading sessions.
E* is our estimated figure