By Thomas Heath,
Investors were taking a lap around Wall Street in anticipation of President Trump’s tax plan announcement later on Wednesday following a Tuesday that saw the tech-heavy Nasdaq break 6,000 for the first time and the Dow Jones industrial average flirt with 21,000.
Some of Trump’s tax plan was already baked into the rising stock market, as was Wall Street’s ease over the first round of French presidential election, which indicated the country will likely elect a leader that will keep France in the European Union.
Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners, said the market is also feeling unexpectedly strong earnings reports from U.S. companies as it takes in the politics at home and in France.
“You are seeing a little pause today,” Zaccarelli said. “Markets are slow to get going, but they are factoring in some of the tax plans proposed by the administration.”
“By electing to go with a non-permanent, 10-year tax cut and a tax cut that is not necessarily revenue neutral, it makes it more likely something will get done this year,” Zaccarelli said.
In early trading Wednesday, the Dow was up just 63 points and holding above the 21,000 threshold. The Nasdaq Composite and the Standard & Poor’s 500-stock index were also in positive territory as investors waiting for news on the Trump plan. The small-cap Russell 2000, which could be helped among the most if the new tax plan benefits small-business owners, was up 0.78 percent.
Most of Nasdaq’s gains have come from five companies, with Apple, Amazon, Facebook, Alphabet and Microsoft together responsible for more than 41 percent of the market’s rise this year.
But there are other indications that technology is powering markets. Electric-carmaker Tesla, which has yet to turn a profit, is worth more than $50 billion, larger than Ford Motor Co. and running neck and neck with the most valuable U.S. car company, General Motors.
Stock prices also got a big boost on a strong start to the earnings season. Caterpillar, DuPont and McDonald’s all reported strong earnings this week. First quarter earnings so far among S&P 500 companies are 6.8 percent above consensus estimates.
Trump is expected to announce a reduction in the business tax rate to 15 percent. Treasury Secretary Steven Mnuchin said it would be the largest tax cut in U.S. history.
Europe and Asian markets were mostly up Wednesday. The Nikkei 225 was up more than 1 percent. The Hang Seng was up 0.5 percent. England’s FTSE 100 had risen a modest 0.2 percent.
Michael Farr, president of Farr, Miller & Washington, a D.C. investment firm, offered a note of caution amidst the ebullience.
“To forget risk is increasing as prices rise is perilous,” Farr said.
“This is a bull market, and this is what bull markets do,” Farr said. “They embrace good news. They dismiss bad news. They don’t care about 59 missiles in Syria. They don’t care about U.S. troops off the coast of North Korea. They infer positive news from France. They like the news of big tax cuts, and they just go higher.”