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Index Idea: US equity response to tax reform

Market indexes measuring large cap US equities, particularly domestic-oriented large cap US equities, saw quite a boost in late November and December as the new US tax plan gained momentum in Congress, leading to its eventual passage.

Global index provider FTSE Russell examined performance for three variations on its US large cap Russell 1000® Index in October, November and December of 2017:

  • The Russell 1000 Index is designed to measure performance and characteristics of the 1,000 largest US stocks. 
  • The Russell 1000 Pure Domestic Exposure Index is designed to measure the performance of Russell 1000 companies with higher domestic sales relative to the US market. 
  • The Russell 1000 Global Exposure Index is to measure the performance of Russell 1000 companies with higher global sales relative to the US market.

While all three indexes saw strong returns and a jump in performance coming out of Thanksgiving weekend in the US, the Russell 1000 Pure Domestic Exposure Index jumped the highest as the US tax reform bill gained momentum through December and became law on December 22.

Tom Goodwin – senior research director, FTSE Russell:

“The relative jump in performance for domestically-oriented US large cap stocks since late November helps illustrate the impact that tax reform, real or perceived, can have on equity markets. Amid growing momentum for passage of US tax reform in December, investor perception that domestically-oriented US stocks could benefit more directly from provision in the new bill, coupled with the expectation that repatriated global revenues for US companies could drive up the US dollar, may explain why the Russell 1000 Pure Domestic Exposure Index had such strong performance in recent weeks.”  

The Russell 1000 Pure Domestic Exposure and Global Exposure Indexes are part of the FTSE Domestic and Global Exposure Index Series.

 

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