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Home>Why the stock market isn't banking on quick action on Trump's tax cuts

Why the stock market isn't banking on quick action on Trump's tax cuts

Why the stock market isn't banking on quick action on Trump's tax cuts

09/29/2017

By William Watts, MarketWatch

Big deficits, gridlock tamp down expectations

Stock-market investors are cautiously penciling back in the prospect of corporate tax cuts, but they're not ready to fully buy in, analysts said.

President Donald Trump and top congressional Republicans on Wednesday proposed sharp cuts to tax rates on businesses and many individuals, including lower rates on corporate profits, and incentives for business investment. The proposal would, for instance, cut the top corporate tax rate from 35% to 20%, rate that Treasury Secretary Steven Mnuchin on Thursday branded "not negotiable." (http://www.marketwatch.com/story/trumps-20-corporate-tax-proposal-non-negotiable-mnuchin-says-2017-09-28)

The tax proposal "does not change our overall assessment that Congress will likely pass tax cuts for individuals in early 2018. We may also get a modest reduction in corporate taxes," said Lewis Alexander, chief U.S. economist at Nomura, in a note.

But the complexity of the corporate tax code, worries over the deficit and the ability of special interests to sway the handful of Republican senators needed to derail any plan leaves the firm pessimistic "about the likelihood of significant corporate tax reform," he said.

The unveiling of the proposal was credited with providing a tailwind for stocks. Indeed, the small-cap oriented Russell 2000 index soared by nearly 2% to close at a record, outpacing a 0.4% rise by the S&P 500 . Small-cap firms, after all, are seen as more likely to benefit from corporate tax cuts as they're more likely to pay nearer the top rate than big multinationals.

See:Could Trump's tax push give languishing small-cap stocks a lifeline? (http://www.marketwatch.com/story/could-trumps-tax-push-give-languishing-small-cap-stocks-a-lifeline-2017-09-01)

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