The markets began the session on Monday thrilled about the globalist victory in France. However, it ended with high hopes for massive corporate tax cuts.  While all of these things come under the heading of hope, there continues to be a real serious fundamental reason for this market to rally, particularly in the industrial sector.

Illinois Tool Works (ITW) was the best performer in the sector, but other big movers included Paccar (PCAR), Parker-Hannifin (PH), and Caterpillar (CAT), which announced retail machine sales were up 46% in Asia-Pacific.  This stock is on the precipice of a major breakout as earnings consensus climbed for the current and the next fiscal year.

The Industrial Index itself has broken the downtrend line and it as though there is a lock to re-test the March 12th high.  These stocks represent the heartbeat of the economy.  I think it’s humming along much faster than it’s getting credit for since everyone’s focus is on the policy and grading Trump’s first one hundred days.  I’m looking for this sector to breakout to reflect a 3.5% + growth in the current quarter.

The other sector that needs to move as a sign of grass roots economic growth is materials, which could get a boost from earnings after the bell from Alcoa (AA).  Despite the 5% sequential revenue gains from increasing aluminum prices, the company saw a big miss on revenue but beat consensus on earnings by $.015. 

Coming into the year, management pegged the aluminum demand to increase by 4.0%, and it’s up from 4.5% to 5.0% from 2016.  This has the stock edging higher after a 5% rally yesterday.

The S&P Materials Index XLB is also on the cusp of a major technical breakout.

Beyond earnings, if the Street could start believing and start modeling for a massive corporate tax cut to 15%, it would spurt substantial moves in financials and consumer discretionary names.

Understand that tax cuts don’t have to be tomorrow. The economy is moving; if you’re waiting for a special invitation, including some kind of pullback, you are making a big mistake and I bet it’s not the first time.

As for a 15% rate even for those that believe in the power of supply-side economics, it’s a bridge too far without any meaningful spending cuts. I think the economy would soar on 25% corporate rates, which would move the effect rate well under 20% - a.k.a. “rocket fuel.” 

Increasingly, the administration is talking about a reparation tax scheme that would be used to offset deficits elsewhere. Yesterday, Steven Mnuchin talked about $1,000,000,000,000 coming home.  It sounds like a lot of money for businesses that are growing faster outside the United States and can borrow inside the United States. 

I also thought the repatriation number would be closer to $500 billion at the most. That being said, this is without a doubt accounting for every individual’s lower taxes, which many, including small businesses, need to do more for the economy.

Be that as it may, I can only hope tomorrow’s tax plan isn’t the stuff of legendary pie-in-the-sky, but it takes into account the disparate members of the GOP; while most of them are willing to sacrifice some principles on taxes, they may balk at a plan too ambitious. 

Today’s Session

It’s off to the races again.  Earning out this morning have been great for the most part.  Of the 5 Dow components reporting, 4 have beaten on the top and bottom line and all have beaten on the bottom line.  Futures are rocking higher and the Nasdaq could hit 6000 for the first time ever today.