Following a recent rough patch, both the Dow and S&P 500 registered the second straight day of gains on Aug 22. The Dow rose 196.14 points or 0.9%, posting its highest point and percentage gains since Apr 25, while the S&P 500 advanced 1%, marking its best increase since Aug 14. Also, the Nasdaq ended its three straight sessions of decline and gained 1.4% on the same day, registering its best one-day rise since Jun 28.

Even the key small-cap index, Russell 2000 advanced 1.1% on Tuesday, after ending in the red for the year, a day earlier. Also, the index rose 1.2% year-to-date. Optimism over Trump’s tax overhaul policies makes small-cap growth funds a favorable investment choice. Though small-cap growth funds are believed to have a higher level of volatility compared to their large and mid-cap counterparts, they show greater growth potential in a low tax environment.

Trump’s Tax Reform in Focus

According to a Politico report, President Trump and his top associates and major congressional leaders are making efforts to formulate a framework for tax reform. In the report, multiple sources confirmed that there is a broad consensus on methods to control both individual and business taxation. These include limiting mortgage interest payments for homeowners, eliminating state and local tax deductions as well as the ability to deduct interest for small businesses.

Additionally, new proposals related to “full expensing” for small-cap companies are also expected to be made. These proposals aim to extend deductions for investments made by small businesses on new facilities and equipment. However, doubts persist over whether the Trump administration can push through this tax plan in the aftermath of the criticism that Trump has faced over his response to the Charlottesville incident. The probe into Russia’s interference in the U.S. presidential election last year is another impediment to tax reforms.

Corporate Tax Rate Likely to be Reduced