It looks like “Trump Trade” is back on beca use of the tax proposal set to be released next Monday, which should reveal specifics on lowering the corporate tax rate. President Trump has been talking about cutting the federal corporate tax rate from 35% to 15% since 2015. Though, he doesn’t seem to have much support from fellow Republicans to go quite that far.
According to JPMorgan head of equity strategy, Dubravko Lakos-Bujas, if the tax rate is cut to 25% that could increase S&P 500 earnings per share by $US11.40 to $US143.40, adding 150 points to the index at the given multiple.
Jim Febeo, senior vice president of government relations at Fidelity Investments, points out that “Before tax reform can advance, Congress needs to pass a budget for 2018 to provide the protected vehicle known as budget reconciliation” which he explains “would allow tax reform to pass the Senate with only 51 votes.” Which means the political pressure for tax reform could make it easier get an agreement on the budget.
But as Fidelity Investment’s director of global macro Jurrien Timmer says “most long-term investors don’t need to react to short-term events.”
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