US open: Stocks little changed as investors eye Trump tax announcement

US stocks were little changed on Wednesday as investors awaited a speech on tax reform by President Donald Trump.

At 1543 BST, the Dow Jones Industrial Average rose 0.12% to 21,021.88 and the S&P 500 was up 0.14% to 2,391.93. The Nasdaq was flat at 6,023.35 after it breached the 6,000 mark on Tuesday.

Meanwhile, West Texas Intermediate was down 0.85% to $49.14 a barrel and Brent crude was off 0.94% to $51.61.

In currency markets, the dollar was flat against the pound at 0.7793, rose 0.32% versus the euro to 0.9181 and was up 0.37% against the yen to 111.50.

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.

Treasury secretary Steven Mnuchin confirmed that Trump’s announcement on Wednesday afternoon will call for corporation tax to be cut to 15% from 35%. He said that it would be “the biggest tax cut and the largest reform in the history of our country”.

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 10.44% after it posted better-than-expected earnings and revenues with user growth exceeding forecasts.

Health insurer Anthem rose 2.86% after it said first-quarter profit rose 44%, while PepsiCo fell 1.82% after it reported a 42% increase in first-quarter profit.

Procter and Gamble was down 1.7% after posting disappointing sales due to slow consumer spending, while Hershey fell 1.32% after the chocolate and sweets maker topped profit forecasts, but revenue fell short.

Boeing dipped 1.41% after better-than-expected earnings but weaker-than-forecast revenue and United Technologies was up 0.42% after posting a 17.8% rise in quarterly profit.

Earnings from Amgen, Tractor Supply and PayPal will be released after markets close.