US close: Markets fall as investors react to Trump tax plan
US stocks were down on Wednesday as investors digested the details of President Donald Trump’s tax reform.
The Dow Jones Industrial Average lost 0.1% to 20,975.09, while the S&P 500 fell 0.05% to 2,387.45 and the Nasdaq 100 softened 0.13% to 5,541.09.
Trump’s chief economic adviser Gary Cohn and treasury secretary Steven Mnuchin confirmed on Wednesday afternoon that the President’s plan would cut the number of federal individual income tax brackets to three from seven, and slash corporate tax rates to 15% from 35%.
Trump tweeted on Saturday that his administration was set to make a big announcement on tax mid-week, after telling the Associated Press a day earlier that his proposal would contain a "massive tax cut" for businesses and individuals.
During the campaign when Trump floated the tax cut analysts said that it would enlarge the country’s deficit.
Russ Mould, investment director at AJ Bell, said that it is unclear whether any of Trump’s proposals will pass through Congress unmolested, especially as the November 2015 Bipartisan Budget Act, which suspended America’s debt ceiling, lapsed on 15 March.
Mould said Trump has a lot less room for manoeuvre than Ronald Reagan, to whom he is regularly compared for his tax-cutting and deregulating zeal, as Trump has taken control at a time when interest rates and inflation are rising, federal debt stands at nearly $20trn, a record high, or 105% of GDP, US stocks look expensive after an eight-year bull run, and US corporations are already paying historically low tax.
US companies’ tax bills represented just 7.5% of pre-tax profit and 3.4% of sales in 2016, according to Federal Reserve data.
Mould said that a tax cut to 15% would likely add 1.5 percentage points to corporate profit margins, using that 3.4% tax paid-to-sales ratio as the starting point and on a total company sales base of $15.6trn, the equivalent to around $225bn, or 13% of the aggregate post-tax profits made by corporate America in 2016.
“This is the profit uplift that the Wall Street lemmings are clearly seeking, but the S&P 500 is already up 11% since Trump’s election, while it remains to be seen whether such a windfall is landed, given likely opposition in Washington and how American corporations’ tax affairs already seem to be run very efficiently,” he said.
In corporate news, Twitter surged 7.91% after it posted better-than-expected earnings and revenues with user growth exceeding forecasts.
Health insurer Anthem rose 3.81% after it said first-quarter profit rose 44%, while PepsiCo fell 0.73% after it reported a 42% increase in first-quarter profit.
Procter and Gamble was down 2.51% after posting disappointing sales due to slow consumer spending, while Hershey fell 0.89% after the chocolate and sweets maker topped profit forecasts, but revenue fell short.
Boeing dipped 1.66% after better-than-expected earnings but weaker-than-forecast revenue and United Technologies was up 1.14% after posting a 17.8% rise in quarterly profit.
Dow Jones - Risers
Verizon Communications Inc. (VZ) $47.36 1.41%
United Technologies Corp. (UTX) $118.20 1.14%
Home Depot Inc. (HD) $154.22 0.78%
Merck & Co. Inc. (MRK) $62.70 0.64%
Travelers Company Inc. (TRV) $122.02 0.57%
Wal-Mart Stores Inc. (WMT) $75.43 0.51%
Walt Disney Co. (DIS) $115.58 0.35%
Coca-Cola Co. (KO) $43.24 0.30%
Pfizer Inc. (PFE) $33.85 0.27%
Caterpillar Inc. (CAT) $104.66 0.23%
Dow Jones - Fallers
Procter & Gamble Co. (PG) $87.74 -2.51%
Boeing Co. (BA) $181.71 -0.98%
E.I. du Pont de Nemours and Co. (DD) $81.62 -0.73%
General Electric Co. (GE) $29.26 -0.65%
Chevron Corp. (CVX) $106.11 -0.61%
McDonald's Corp. (MCD) $140.84 -0.61%
Apple Inc. (AAPL) $143.68 -0.59%
Nike Inc. (NKE) $55.16 -0.52%
Exxon Mobil Corp. (XOM) $81.40 -0.40%
Visa Inc. (V) $91.82 -0.31%
S&P 500 - Risers
Edwards Lifesciences Corp. (EW) $109.30 10.49%
Wyndham Worldwide Corp. (WYN) $100.54 9.02%
Perrigo Company plc (PRGO) $73.03 7.68%
Total System Services Inc. (TSS) $58.19 7.14%
Juniper Networks Inc. (JNPR) $29.46 6.05%
Wynn Resorts Ltd. (WYNN) $125.19 5.90%
Thermo Fisher Scientific Inc. (TMO) $168.01 5.79%
First Solar Inc. (FSLR) $28.99 5.27%
Baxter International Inc. (BAX) $55.59 4.47%
Anthem Inc (ANTM) $179.03 3.81%
S&P 500 - Fallers
United States Steel Corp. (X) $22.78 -26.78%
Seagate Technology Plc (STX) $42.01 -16.83%
CH Robinson Worldwide Inc (CHRW) $72.81 -6.29%
Dr Pepper Snapple Group Inc. (DPS) $92.92 -5.52%
Boston Properties Inc. (BXP) $127.35 -4.94%
Kansas City Southern (KSU) $86.78 -3.96%
Discover Financial Services (DFS) $65.26 -3.05%
Vornado Realty Trust (VNO) $97.59 -2.95%
Capital One Financial Corp. (COF) $83.07 -2.94%
GGP Inc (GGP) $21.97 -2.83%
Nasdaq 100 - Risers
Norwegian Cruise Line Holdings Ltd. - Ordinary Shares (NCLH) $52.76 3.29%
Costco Wholesale Corp. (COST) $176.80 2.39%
Express Scripts Holding Co (ESRX) $61.28 2.12%
Biomarin Pharmaceutical Inc. (BMRN) $96.07 2.00%
TripAdvisor Inc. (TRIP) $44.50 1.95%
Marriott International - Class A (MAR) $96.31 1.83%
Henry Schein Inc. (HSIC) $173.18 1.74%
Illumina Inc. (ILMN) $184.58 1.70%
Gilead Sciences Inc. (GILD) $68.22 1.64%
Mylan Inc. (MYL) $37.44 1.60%
Nasdaq 100 - Fallers
Seagate Technology Plc (STX) $42.01 -16.83%
NetEase Inc. Ads (NTES) $265.40 -4.52%
Intuit Inc. (INTU) $115.81 -2.75%
Western Digital Corp. (WDC) $84.61 -2.61%
Biogen Inc (BIIB) $280.03 -2.41%
Sirius XM Holdings Inc (SIRI) $5.11 -1.83%
Analog Devices Inc. (ADI) $77.98 -1.73%
Texas Instruments Inc (TXN) $81.11 -1.52%
J.B. Hunt Transport Services Inc. (JBHT) $90.76 -1.49%
Kraft Heinz Co. (KHC) $90.92 -1.48%