U.S. equities cooled their heels after Tuesday’s big push to new record highs — led by mega-cap tech stocks in the Nasdaq Composite — as President Trump unveiled his tax plan.
The disappointment was palpable on a lack of specifics after months of teasing from the White House. Stocks have gained trillions in market cap value in anticipation of Trump’s proposed pro-business legislation, of which, none have proceeded through the House of Representatives. As a result, patience is wearing thin.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 lost 0.1%, the Nasdaq lost a fraction and the Russell 2000 gained 0.6%. Treasury bonds were mostly stronger, the dollar gained against the euro, gold lost 0.2% and crude oil gained 0.1% after mixed inventory data (crude stockpiles saw a large draw while gasoline stocks posted a big build).
Breadth was modestly positive, up with 1.4 advancers for every decliner on the NYSE. Volume was heavy again, at 117% of the 30-day average. Defensive telecom stocks rebounded, up 1.2% to lead the way. REITs were the laggards, down 0.9%.
Twitter Inc (NYSE:TWTR) gained 7.9% after a big first-quarter earnings and revenue beat on strong user metrics, with monthly active users up nine million while daily active users increased 14% from last year for the fourth straight quarter of acceleration.
Wynn Resorts, Limited (NASDAQ:WYNN) gained 5.9% on a big operating earnings beat thank to a upside at both Macau and Las Vegas properties on share gains. And Chipotle Mexican Grill, Inc. (NYSE:CMG) gained 2.4% on an earnings beat driven by a 17.8% rise in comp-store sales vs. the 14.9% gain expected.
On the downside, United States Steel Corporation (NYSE:X) was slammed 26.8% on a big quarterly earnings miss on a drag from flat rolled steel sales and higher material costs. Forward guidance was lowered. Hard drive maker Seagate Technology PLC (NASDAQ:STX) fell 16.8% on a revenue miss and bloated inventories for this time of the year. And Procter & Gamble Co (NYSE:PG) fell 2.5% after reporting an earnings beat that was clouded by weak organic revenue growth and tepid guidance.
Turning back to Trump, his tax plan follows these broad outlines: Simplified system with fewer brackets, a doubling of the standard deduction, a 15% business tax rate that would apply to smaller “pass through” entities, elimination of the “death tax” and alternative minimum tax, and the elimination of all deductions save mortgage interest and charitable gifts. Specifics still need to be hashed out with members of Congress.
There was also action on trade, with Politico reporting that Trump is preparing an executive order to withdraw from the NAFTA free-trade pact with Canada and Mexico. And there is ongoing chatter about renewed progress on health care reform.
The market seems remarkably unconcerned about a possible government shutdown on Friday, with expectations high for a temporary funding bill that gives Republicans and Democrats a few more weeks to hash the budget out.
For now, with technical measures overextended, breadth narrow, and sentiment still red hot, the risk-reward relationships seems biased to the downside. As result, I am recommending new defensive positions such as the May $16 calls in the Short Term VIX (NYSEARCA:VXX) that are up more than 20% for Edge Pro subscribers.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.