Stock indexes wobbled between modest gains and losses Wednesday, as the White House unveiled broad outlines of its plan to slash tax rates but left many of the details unclear.
Anticipation for a big tax cut, along with looser regulations on businesses, have been two of the main drivers behind the stock market’s surge since November, when Republicans swept into Washington. The White House delivered a big number Wednesday, when officials said they hope to cut the top corporate tax rate to 15 percent from 35 percent.
But many specifics are still to be negotiated, such as how much it will affect the government’s budget deficit, and they will need to be hammered out with Congress. That left investors questioning exactly how much benefit will flow through to corporate profits, and how much stock prices should climb beyond what they already have.
“Tax reform will be good, but a lot of that has already been priced into the market,” said David MacEwen, co-chief investment officer for American Century Investments.
The Standard & Poor’s 500 index slipped by 1.16 points, or less than 0.1 percent, to 2,387.45. It had briefly climbed above its record closing level of 2,395.96 earlier in the day, only to give up its gains in the last minutes of trading.
The Dow Jones industrial average lost 21.03 points, or 0.1 percent, to 20,975.09, and the Nasdaq composite slipped 0.27 points, or less than 0.1 percent, to 6,025.23. Stocks of smaller companies did better, with the Russell 2000 index of small-caps rising 8.35, or 0.6 percent, to 1,419.43.
The proposal for a 15 percent corporate tax rate is likely just an opening salvo, and negotiations with Congress may push that figure higher, analysts said. Any corporate tax cut would help boost profits for businesses, which would help justify the 11.6 percent surge for the S&P 500 since Election Day. Some investors are worried stocks have grown too expensive because prices have climbed faster than corporate profits.
MacEwen said several elements of the tax proposal would be beneficial, including how foreign profits would be treated, but what Washington ultimately gets approved may fall short of the stock market’s expectations. Also still uncertain is how much the final proposal would boost the economy, which would drive profits further and justify yet more stock price gains.
Of course, tax policy isn’t the only thing pushing stocks higher, MacEwen said. Businesses are in the midst of reporting their profits for the first three months of the year, and they’ve largely been better than expected. Analysts expect this to be the strongest quarter of growth in years.