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Major stock market indexes added to record highs Monday after the United States announced a new trade deal with the European Union over the weekend, giving investors reason to rally ahead of the Federal Reserve’s long-awaited policy announcement on Wednesday, when the central bank is expected to start pulling back on its Covid-19 stimulus efforts.

Key Facts

The Dow Jones Industrial Average tacked on 94 points, or 0.3%, on Monday, thanks to outsized gains in JPMorgan, Visa and Goldman Sachs, while the tech-heavy Nasdaq jumped 0.6%.

The S&P 500 climbed 0.2%, with a slew of stocks rallying after the United States and European Union announced a deal to ease sanctions on steel and aluminum put in place by former President Donald Trump—quelling concerns of a massive 56% tariff in Europe and lifting bike-maker Harvey Davidson by 9%.

In a Monday morning research note, analyst Tom Essaye, founder of the Sevens Report, pointed to growing near-term economic clarity as the biggest market catalyst, saying strong corporate earnings and expected progress on two massive fiscal packages out of Washington, D.C. should continue to boost stocks this week.

Additionally, Essaye writes the Fed on Wednesday should unveil how quickly it will ease its unprecedented pandemic-era monetary policy, namely the $120 billion in monthly asset purchases to help lubricate the economy. 

Economists expect the Fed will decide to taper, or reduce, its asset purchases by about $15 billion each month in order to phase them out completely by the middle of the next year—a timeline Essaye says should appease investors who’ve been concerned the Fed will roll back support too quickly.

Key Background

Following a weeks-long breather, stocks returned to record highs last month thanks to largely resilient corporate profits in the face of supply chain constraints and rising costs, with about 82% of S&P 500 companies reporting stronger-than-expected third-quarter earnings so far, according to Refinitiv data. Google-parent Alphabet, Microsoft, Goldman Sachs, Tesla and Ford are among firms that beat expectations. Though inflationary fears have rattled markets this year, Lindsey Bell, chief investment strategist at Ally Invest, says the concerns haven’t been worrisome enough to discourage investors, pointing to rallying transportation and consumer discretionary stocks as signs that “worries around supply chain constraints are beginning to fade.”

Surprising Fact

All three major indexes closed at record highs on Friday. The S&P 500 has climbed 25% this year, while the Dow and Nasdaq are up 19% and 22%, respectively. 

Further Reading

Dow And S&P Hit New Record Highs As Tesla Adds To Its Massive Rally (Forbes)

Stocks Close At Record Highs After Tesla Hits $1 Trillion In Market Value (Forbes)