Wells Fargo
Wells Fargo's equity strategy team weighed in on the tax plan with the markets angle, stating that expectations of a sudden market jump are overblown. They said:
• "We continue to caution investors about believing there’s significant market upside as it relates to changes in the tax picture. We’re placing more faith in a rotation rather than an upward market 'pop.'"
• "What do we do??? In the near-term, we think clients still need to reduce exposure to the ‘Anti-Trump Trade.’ For the more aggressive and nimble investor, we feel there is still more upside opportunity to the ‘Trump Trade’, especially with smaller cap stocks."
• Note: The so-called "Trump Trade" means betting on areas of the market expected to benefit from newly-announced policies. You can read more about it here.
Macquarie
The Australia-based firm was unimpressed with the measures proposed by the Republicans, and pessimistic about the potential effect on economic expansion. They said:
• "The proposed US tax plan strikes us as a great deal of fuss over relatively meager benefits."
• "Simplifying and rewriting the US tax code could be one of the best avenues for stimulating growth. Alas, there was nothing yesterday about eliminating over 70,000 of redundant and overlapping pages of the tax code."
• "While the announcement reduced the number of tax brackets and eliminated several pet projects (death duties), it has achieved little to stimulate consumption ... Net/net, it seems unlikely that proposed changes in personal taxes would do much to stimulate."
• "While on paper the proposal creates a shortfall of $3-4 trillion over a decade, it is unlikely to survive. Instead, numbers closer to$1.5 trillion are far more likely, with most benefits flowing into financial assets rather than consumption or investment."
Nomura
Nomura expressed measured confidence around the ability of at least part of the tax plan to go into effect — but it does have some worries about one specific area. They said:
• "Today’s announcement 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. However, given the complexity of the corporate tax code, concerns over the deficit, and the ability of special interests to sway the few Republican senators needed to thwart any plan, we remain pessimistic about the likelihood of significant corporate tax reform."
• On impact of government’s fiscal position: "One reason for our pessimistic view of significant tax cuts is that the fiscal outlook today is considerably worse than in times past when taxes were cut."
Morgan Stanley
Morgan Stanley expressed a similarly cautious tone, although it did concede that the tax plan was a step in the right direction. They said:
• "A necessary, positive step, as details (smaller corporate rate cut, interest deduction limits, bonus depreciation) moved closer to our base case of what's politically & legislatively achievable."
• "Plan details appear to align with our base case for tax reform: slow progress toward 2018 passage, meaningful execution risk, and a moderation of rate cuts and deficit expansion relative to prior White House proposals."
• "Difficult debates linger, suggesting provisions will be further moderated & execution risks remain."
• On the corporate tax rate cut: "Given the procedural constraints for achieving a permanent corporate tax rate reduction,and the unattractiveness of a temporary corporate rate cut, our base case is that legislation will ultimately settle closer to a 25% rate given the political challenges of embracing the yet unidentified pay fors required to achieve 20%."
• On bipartisan cooperation: "Cutting the top individual tax rate and eliminating the estate tax make it very unlikely that Democrats would support the plan. Barring any significant changes, we think the idea of bipartisan tax reform that garners enough Democratic votes to clear the filibuster hurdle can be put to rest."
Bank of America Merrill Lynch
BAML didn't see anything in the tax plan drastic enough to change its economic outlook. Here are some select comments from the firm expanding on that:
• The report has "a few more details, but far from comprehensive," containing "all the goodies but none of the pain."
• "While the Republican leadership made further progress on a tax bill, we continue to believe that a comprehensive tax legislation bill faces long odds."
• "The current blueprint does not lay out how it will pay for the tax cuts."
• "Any new taxes, repeal of deductions and loopholes, or a significant increase in the budget deficit could face stiff opposition in Congress."
• "A modest deficit-increasing tax cut is possible, but our baseline remains that Congress is unlikely to get significant tax legislation passed by next year, leaving our economic outlook unchanged for 2018."
