The White House revealed its highly anticipated tax plan this afternoon and markets reacted with a shrug. The release, a one-page release and brief press conference, did not contain many surprises, but raised many questions.
Stocks declined slightly. The S&P 500 dropped 0.05%, the Dow Jones Industrial Average lost 0.10%, and the Nasdaq was flat.
President Donald Trump's tax plan includes a reduction in the corporate tax rate to 15% from 35% and a top individual tax rate of 35% as widely expected. The plan reduces the number of individual tax brackets to three from seven. The plan also backs the repeal of the alternative minimum tax and the death tax. Trump called upon the simplification of the tax code on the campaign trail and over the past three months in office.
Earlier, Treasury Secretary Steven Mnuchin on Wednesday said Trump's tax cuts would be "the biggest tax cut and the largest tax reform in the history of our country," though chief economic advisor, Gary Cohn, called the cuts just "one of" the biggest in comments to the White House press on Wednesday afternoon.
"There is still a lot unknown about the tax plan," said Matthew Peterson, chief wealth strategist at LPL Financial. "For example, we know the tax brackets, but not what income levels would trigger the rates. Cash held overseas being repatriated would be at a lower, but still unknown, level."
Peterson added, "To the market, this is a snooze, and we are seeing a model decline after the announcement, simply because neither the President's nor Secretary Mnuchin's comments really advance the ball much. The market was looking for clarity. It wasn't going to get it. But it didn't even get the roadmap."
A reduced corporate tax rate would greatly lower federal revenue. One analysis from the conservative-leaning Tax Foundation during the campaign estimated that a reduction in the corporate tax rate would cut federal revenue by $2 trillion over 10 years.
Trump's proposed tax plan would still need to be translated into actual legislation that could pass Congress, a process that could take months. Such a sharp decline in the corporate tax rate could be a sticking point for Congress.
Stock markets have rallied to new heights since the presidential election in November on Trump's tax plans, betting that an overhaul of the tax code would be beneficial to companies' financial health and eventually act as economic stimulus. However, faith in the Trump administration's ability to enact campaign promises faltered earlier this year after the president's promise to repeal and replace Obamacare failed before heading to Congress for a vote.
A second effort to repeal and replace Obamacare grew more likely to succeed on Wednesday after the House Freedom Caucus backed the latest version from the White House. The group has officially endorsed the revised plan, which has yet to be made public. The Freedom Caucus said in a statement that while the version does not fully repeal the Affordable Care Act, members were "prepared to support it to keep our promise to the American people to lower healthcare costs."
Another big rally on Wall Street on Tuesday made for a day of milestones: the Dow and S&P 500 enjoyed their best back-to-back gains of the year, while the Nasdaq scored a new record and topped its never-before-seen 6,000 milestone. The Dow owed much of its gains to better-than-expected earnings from industry leaders including Caterpillar (CAT) , McDonald's (MCD) and DuPont (DD) .
In topping the psychologically important milestone of 6,000 for the first time Tuesday, the Nasdaq reaped the rewards of a broader market rally that pushed the tech-heavy index up 11% since the beginning of the year and nearly 22% over the past 12 months. Tech industry leaders including Apple (AAPL) , Amazon (AMZN) and Facebook (FB) have contributed to recent gains. The Nasdaq first hit 5,000 in March 2000, the tail-end of the dotcom bubble. It took less than a year for the Nasdaq to move from 4,000 to 5,000.
Twitter (TWTR) surged nearly 8% Wednesday after narrowing its quarterly loss and beating adjusted earnings estimates. A net loss of 9 cents a share was slightly less than 12 cents a share in the year-ago quarter. Adjusted earnings of 11 cents a share were more than 5 times consensus. Revenue fell 8% to $548 billion, but exceeded estimates of $517 million. Average monthly active users increased 6% from the fourth quarter to 328 million.
Chipotle (CMG) rose 2% as improving traffic trends benefited its top- and bottom-line. The burrito chain swung to a profit of $1.60 a share from losses of 88 cents a share in the year-ago quarter. Analysts anticipated earnings of $1.29 a share. Revenue surged 28% to $1.07 billion, exceeding estimates of $1.05 billion. Comparable sales increased 17.8%, above estimates of 15.5%. Chipotle has slowly tempted customers back after a food-safety scandal in late 2015.
Dow component Boeing (BA) reported a mixed quarter with earnings above estimates, but revenue below. Adjusted earnings of $2.01 a share came in a dime above expectations. Revenue slid nearly $2 billion to $20.9 billion and fell short of estimates of $21.3 billion. CEO Dennis Muilenburg said the company remained on track to "achieve our full-year revenue, earnings and cash flow targets as our teams deliver on our large and diverse order backlog."
So far this earnings season, more than one-third of S&P 500 companies have reported on their recent quarterly performance. Of those that have reported, nearly 77% have exceeded first-quarter earnings estimates, above the historical average of 64%. Companies have had generally weaker performances on the top-line with 63% topping consensus, beating out the historical average of 59% by a narrower margin. Thomson Reuters anticipates 11.8% earnings growth and 6.9% revenue growth.
Crude oil prices turned higher on Wednesday after a sharper decline in weekly domestic inventories than anticipated. U.S. crude stockpiles fell by 3.6 million barrels in the past week, according to the Energy Information Administration. Analysts anticipated a drop of 1.7 million barrels. Gasoline and distillates stocks each showed an unexpected increase.
West Texas Intermediate crude was up 0.1% to $49.62 a barrel on Wednesday.
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