Dow surges 118 points to record close on tax bill optimism

  • The Dow Jones industrial average jumped 118.77 points, boosted by gains in Boeing and Verizon.
  • The S&P 500 rose 0.1 percent, also notching closing and intraday record highs.

U.S. stocks rose on Tuesday amid growing optimism that Republican lawmakers would be able to revamp the corporate tax system. Wall Street also looked to the Federal Reserve as its two-day policy meeting kicked off.

The Dow Jones industrial average jumped 118.77 points to 24,504.80, boosted by gains in Boeing and Verizon. The index also posted intraday and closing record highs.

The S&P 500 gained 0.1 percent to close at 2,664.11, notching intraday and closing all-time highs, with telecommunications and financials outperforming.

The Nasdaq composite lagged, finishing 0.2 percent lower at 6,862.32.

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Bloomberg News reported that Republican Sen. John Cornyn said lawmakers may have a tentative tax deal today. The major indexes jumped to session highs shortly afterward.

"I think that is the catalyst for the market going up here," said Anthony Conroy, president at Abel Noser. He also noted that banks were rising ahead of the Fed's monetary policy announcement on Wednesday.

Republican lawmakers — who hold a majority in both the House and Senate — are pushing for a revamp of the U.S. tax code by year-end which would significantly lower corporate taxes. But after passing separate tax bills, House and Senate lawmakers must agree on a joint bill to be sent to President Donald Trump.

The prospect of lower corporate taxes has been a boon for U.S. stocks this year as they have ascended to record highs.

In light of potential changes, the Fed may be forced to increase its economic and interest-rate outlooks.

The U.S. central bank began a monetary policy meeting on Tuesday. Peter Cardillo, chief market economist at First Standard Financial, said he does not expect any major surprises from the Fed this week. He noted, however, that if the central bank adopts a more hawkish stance, it could "scare the heck out of the market."

The Fed is largely expected to announce an interest rate hike on Wednesday at 2 p.m. New York time. Market expectations for a 25-basis-point rate increase were at 87 percent on Tuesday, according to the CME Group's FedWatch tool.

"I think investors will be looking for guidance about 2018 given the leadership changes," said Eric Stein, co-director of global income at Eaton Vance.

Fed Governor Jerome Powell is set to take over as Fed chair for Janet Yellen once her term ends in February. "Though I think that Powell is the closest thing to Yellen you can get" in terms of approaching monetary policy, said Stein.

The Fed is currently forecast to raise rates three times next year.

"Tax cuts have not been factored into the Fed's rate hike projections and represent an upside risk to growth," said Alberto Gallo, partner at Algebris Investments.

In corporate news, Boeing shares surged 2.4 percent after the company raised its dividend and approved an $18 billion buyback.

Verizon's stock, meanwhile, rose 2.6 percent after Nomura upgraded it to "buy" from "neutral." Nomura also raised its price target on Verizon to $61 per share from $47, representing a 17.7 percent upside from Monday's close.

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Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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