Tuesday's robust advance may prove to be the "last gasp" of the rally or perhaps the beginning of the "blow-off phase" some predicted as the advance from the mid-March lows gathered momentum. But wild action in (particularly) biotech and Internet stocks such as Celgene ( CELG) and Amazon.com ( AMZN) aside, there's arguably a method to the madness. Beyond near-term developments, which were largely positive, there are some underlying supports to the bullishness, as discussed later in this piece. We begin, however, with the headlines. Lower taxes, prospects for peace in the Middle East, rising consumer confidence and ongoing strength in housing were among the catalysts cited for Tuesday's rally, which saw the Dow Jones Industrial Average rise 2.1% to 8781.35, the S&P 500 gain 2% to 951.48 and the Nasdaq Composite jump 3.1% to 1556.49. Tuesday's closes are the averages' highest yet since the March lows. The Dow and S&P eclipsed respective intraday highs hit on May 16 and the Comp on May 15. Technically speaking, that's all "good" and the S&P is now 3 points away from its Dec. 2 intraday high of 954.32, a closely watched resistance point.
Chorus of Bullishness
"We should not underestimate the significance of this tax reform," opined Kent Engelke, capital markets strategist at Anderson & Strudwick. "This lowering of marginal tax rates on personal income and capital encourages entrepreneurial activity, which will increase economic growth and hence stock prices, for the intermediate future." Educated people will argue the merits of the package. Notably, the euro surged to an all-time high of $1.1932 intraday Tuesday before retreating to around $1.1832 in late New York trading. The euro's latest rally partly reflected concerns about further dollar weakness due to America's rising deficits, which last week's congressional passage of a $350 billion tax cut will exacerbate.