STREET DOGS

Adapted from #SaxoStrats: Trump’s tax plan is finally here and though it’s short on details some key points are clear. The corporate tax rate is set at 20%, down from the current 35% … and a reduced 35% top income tax rate for individuals. These measures [should] be a major boost for the economy and US equities. Judging by market reaction to the plan it’s clear that a potential alpha portfolio … should be US small cap stocks, financials, consumer discretionary and energy. The latter sector has also been driven by higher oil prices — the market is pricing in a positive outlook for oil on a Trump tax reform. What could go wrong? Republicans are already expressing concern over the fiscal budget from these extensive tax cuts. It’s likely that Trump’s starting position on taxes will be far from the final result … his deal-making record will also create uncertainty over the tax bill. While many things can go wrong we believe investors should grab the opportunity to be overweight US as long as the news flow stays positive on the tax reform and overweight the sectors of the equity market we mentioned above.

From Business Insider:

Investors have already started piling back into the Trump Trade after a long hiatus. But don’t worry … there’s still a great deal of upside potential, especially since these same Trump-linked strategies retraced all of their postelection gains.… The key measure investors are focusing on: a lowering of the corporate tax rate to 20%; the repatriation tax holiday for companies holding trillions of dollars overseas (likely to wind up being used to pay dividends and buy back shares). This means the two most straightforward Trump trades involve buying stock in those companies that pay the most taxes and those that hold the most cash overseas.