S&P 500; US Indexes Fundamental Daily Forecast – Mixed Reaction to Tax Reform Plan Proposal

U.S. equity indexes are trading mixed on Thursday after the release of the tax-reform plan proposed by Republicans.

At 1743 GMT, the benchmark S&P 500 Index is trading 2576.30, down 3.06 or -0.12%, the blue chip Dow Jones Industrial Average was 23460.06, up 25.05 or +0.11% and the tech-based NASDAQ Composite is at 6704.54, down 11.99 or -0.18%.

Although investors are still pouring over the details of the tax plan, many felt the uncertainty surrounding the plan was enough to encourage profit-taking.

The initial proposal is not likely to pass into law quickly. This may be what is creating the uncertainty. Furthermore, investors believe that it’s not enough to be meaningful. Some are doubtful that it’ll have any significant impact on the overall GDP of the country.

Over the long-run, cutting taxes would increase spending, drive inflation and U.S. interest rates higher. However, since the process to become law may be lengthy, the proposal is having no bullish impact on stocks at this time.

Traders said the highlights of the proposal were that the plan would permanently lower the corporate tax rate to 20 percent and keep retirement savings plans like the popular 401(k) intact.

Additionally, the plan would also cut mortgage interest rate deductions in half. This had an immediate effect on the stock market with shares in homebuilder and consumer-related stocks falling.

Stock market investors now await the announcement from President Trump of the next Fed chair. Trump is widely expected to pick Fed Governor Jerome Powell. He is considered dovish like Yellen so his selection is likely to have very little negative impact on the market. It may actually cause a pop to the upside.

After the bell, traders will be eyeing reports from Apple, Starbucks and CBS.

In other news, the Challenger Job Cuts report came in at -3.0%. This report represents the change in the number of job cuts announced by employers. ‘Actual’ less than ‘Forecast’ is good for the U.S. Dollar. Last month, the report came in at -27%.

Weekly Unemployment Claims were 229K, better than the 235K estimate and 234K previous reading.

Preliminary Nonfarm Productivity was 3.0%. This was slightly worse than the 2.5% forecast. The previous number was raised to 1.5%.

Preliminary Unit Labor Costs were 0.5%, matching the forecast. The previous report was revised downward to 0.2%.

Fed Governor Jerome Powell delivered a speech Thursday morning but dropped no hints about his impending appointment to lead the central bank.

In his speech, Powell discussed Libor, or the rate that banks charge each other for short-term loans. Wall Street is transitioning away from the rate, a process that Powell said will be costly but important for the financial system’s integrity.

“So, while much has been done, there is more still to do. I have been heartened in seeing that many participants are already confronting these issues,” Powell said in his prepared remarks.