Small companies make biggest gains as US stocks rise

Associated Press

NEW YORK

U.S. stocks climbed Wednesday as smaller companies soared after a report that showed business investment climbed in August. Investors also hoped stocks will benefit from tax cuts proposed by President Donald Trump and congressional Republicans.

The Labor Department said orders for long-lasting manufactured goods rose, and a gauge of business investment climbed for the second month in a row. Investors hope that means U.S. manufacturing is getting stronger as the global economy continues to improve, and they bet on continued growth: technology companies rallied for a second day, while the prices of traditionally safe investments such as bonds and gold dropped.

“We’ve been waiting for that,” said Kate Warne, an investment strategist for Edward Jones, of the recent improvement. “Business spending has been relatively weak,” with spending by consumers keeping the economy afloat.

Smaller, domestically-focused banks and technology and industrial firms made especially large gains, and the Russell 2000 index of smaller-company stocks made its biggest gain since March.

The tax proposal was similar to what investors had come to expect, and with months of negotiations likely ahead and key details missing, it’s not clear what kind of plan might ultimately pass. But lower corporate taxes could help smaller companies more than large ones.

“A corporate tax cut tends to be better news for smaller companies because they don’t have as many ways to reduce their tax rate,” said Warne.

The proposal would cut tax rates for individuals and corporations. It would lower the top corporate tax rate to 25 percent from its current 35 percent, and also reduces the number of personal tax brackets and nearly doubles the standard deduction used by most Americans.

The Labor Department’s report gave investors hope the economy will keep growing, and Wall Street bet that interest rates will keep rising. The yield on the 10-year Treasury note climbed to 2.30 percent from 2.24 percent. That helped banks, as higher interest rates mean they can charge more to lend money. Bank of America picked up 60 cents, or 2.4 percent, to $25.41 and Citigroup rose $1.34, or 1.9 percent, to $72.28.