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S&P, Dow poised for fresh records at open, as investors take heart from earnings

Facebook is reporting after the market closes

The Dow industrials and the S&P 500 were shaping up for new records Wednesday, as hopes for U.S. tax reforms grew and corporate earnings kept racking up a strong season.

Traders are looking ahead to Facebook and Tesla results later in the day to continue that estimate-beating earnings trend, as November gets underway.

Markets were also buoyed by an upbeat set of manufacturing data from China and a continued rally in oil prices, which continued to push above a two-year high.

What are stocks doing?

Futures for the Dow Jones Industrial Average YMZ7, +0.54% rose 92 points, or 0.4%, to 23,418, while those for the S&P 500 index ESZ7, +0.41% gained 8.05 points, or 0.3%, to 2,580.75. Futures for the Nasdaq-100 index NQZ7, +0.48% put on 26 points, or 0.4%, to 6,275.75.

The upbeat mood comes after U.S. stocks closed higher on Tuesday, with all three major benchmarks posting their biggest monthly percentage rises since February.

The Dow average DJIA, +0.12% wrapped up October with its first seven-month winning streak since April 2012, while the S&P SPX, +0.09% logged its longest monthly win run since Mary 2013. Both closed marginally below their record closes on Tuesday, so the indicated gains on Wednesday could send the benchmarks toward all-time highs.

What’s driving the markets?

A whole range of things. First off, all the earnings season has been strong, with 75% of the S&P companies to have reported so far beating earnings estimates, according to FactSet data.

Hopes of a major U.S. tax reform to boost the economy and stock markets have also been buoying the U.S. stock indexes. The tax bill was planned for release on Wednesday, but has been postponed by a day to iron out unresolved issues. The Republicans plan to drop the corporate tax rate to 20% and delay a planned repeal of estate tax, according to people close to the matter.

Additionally, all eyes are on the Federal Reserve this week. The central bank is widely expected to keep rates on hold, but keep the door open for a December rate hike, when it announces its policy decision at 2 p.m. Eastern Time Wednesday.

The rate decision, however, is likely to be overshadowed by speculation of who will become the next Fed chair. U.S. President Donald Trump is expected to name his pick on Thursday, with all indications so far pointing to current Fed Governor Jerome Powell as the choice.

Outside the U.S., traders welcomed the latest Caixin China manufacturing purchasing managers’ index reading, which showed factory activity in the world’s second largest economy continued to expand at a steady pace in October.

What earnings are coming up?

In another busy day on the earnings calendar, Allergan PLC AGN, -0.79% , Molson Coors Brewing Co. TAP, +2.43% , New York Times Co. NYT, -0.52% and Estée Lauder Cos. EL, +0.87% are among major companies expected to report before the open.

And after the market closes, Facebook Inc. FB, +0.11% , Tesla Inc. TSLA, +3.58% and Kraft Heinz Co. KHC, +2.74% are on the docket. Qualcomm Inc. QCOM, -6.68% , MetLife Inc. MET, -0.72% and Allstate Corp. ALL, -0.22% are also expected to release earnings after hours.

Which stocks are in focus?

Shares of United States Steel Corp. X, -4.31% jumped 7.8% before the bell, after the steelmaker’s quarterly results and outlook out late Tuesday topped Wall Street estimates.

Electronic Arts Inc. EA, +1.72% dropped 2.9% in Wednesday’s premarket action after the video-game maker reported a second-quarter loss after Tuesday’s closing bell.

What are strategists saying?

“Investor sentiment is generally strong right now and with progress being made on tax reform, the momentum remains with the rally at the moment. Risks obviously remain, but until they rear their ugly head once again, which I’m sure they will, these gradual and consistent gains can easily continue,” said Craig Erlam, senior market analyst at Oanda, in emailed comments.

“The U.S. stock markets have got many reasons to attract global investors at the moment. A strong and sustained positive trend since a year, backed by solid 3Q earnings and spiced up with optimism on tax reforms,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group

“Facebook earnings release is due later today and the expectations are positive in the continuation of a solid 3Q earnings season. My only concern is the conflict among the Republicans regarding the tax reforms. If we do not hear anything concrete within a couple of days, the optimism could leave its place to a correction,” she said in emailed comments.

What economic data are in focus?

The ADP employment report for October, seen as a precursor for the closely watched nonfarm payrolls report on Friday, is due at 8:15 a.m. Eastern Time.

The Markit manufacturing PMI for the same month is scheduled for release at 9:45 a.m. Eastern, followed by the October ISM manufacturing index and September construction spending data at 10 a.m. Eastern.

Monthly auto sales numbers will trickle out through the day.

What are other markets doing?

Oil prices continued to rally on optimism that the OPEC deal to cut production is working. West Texas Intermediate crude oil CLZ7, +1.21% up 1.2% at $55.02 a barrel, to trade around the highest level since the summer of 2015.

In currencies, the pound GBPUSD, +0.1506% jumped to $1.3313 from $1.3283 late Tuesday in New York. The upbeat sterling mood came on signs London and Brussels are determined to make progress in the Brexit talks, while investors also looked ahead to the Bank of England’s policy meeting on Thursday. The U.K. central bank is widely expected to raise interest rates for the first time in more than a decade.

The dollar traded mixed against other major currencies, with the ICE Dollar Index DXY, +0.11% up 0.1% at 94.627.