After the failure of House GOP leaders and the White House to pass their proposed healthcare overhaul bill on March 24, stocks sold off on what many analysts assumed was fear that President Donald Trump’s promised tax cut was not coming.
But JPMorgan strategist Dubravko Lakos-Bujas thinks that the healthcare failure may turn out to be good news for companies awaiting a tax bill decrease.
According to Lakos-Bujas, shifting the focus earlier from healthcare to tax reform could mean the latter could come sooner than expected.
“The failed AHCA bill last week has led investors to question the administration’s legislative efficacy,” said a note from Lakos-Bujas on Monday. “In our view, the lack of sufficient GOP support to replace ACA is not necessarily a negative for equities. Instead, the failed vote could potentially pull forward the timeline for the tax reform, which has broader and more bipartisan support than the healthcare bill.”
Trump has said he wants to cut corporate taxes to 15% from the current federal rate of 35%. He has since revised that to a range of 15% to 20% and reports indicate that the cut could only be to 28%, the level proposed by former president Barack Obama in 2012.
Trump told manufacturing CEOs on February 9 that he would introduce his tax plan in “two or three weeks,” but White House Press Secretary Sean Spicer told reporters on Friday, March 31 that the plan was not finished. It has been seven and a half weeks since Trump made his statement.
To Lakos-Bujas, the market is discounting the possibility of tax reform and deregulation, the two Trump promises that Wall Street has been excited about, and that creates an opportunity for investors.
“Currently, the market does not seem to be pricing in much upside from pro-growth policy reforms,” said the note. “Equities tied to Trump’s agenda have unwound most of their post election gains: deregulation, corporate tax reform, and infrastructure spending. We recommend investors to opportunistically add exposure to these themes.”
Trump has said that he is not done with healthcare, but has also said he is moving onto other priorities as well.
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