Trump's tax plan is coming - here's how Wall Street says to trade it
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You can too - if you know where to look.
Just focus on the so-called "Trump trade," which involves betting on the areas of the market poised to benefit most from the pro-business policy overhaul being touted by the president.
Investors have already started piling back into the trade after a long hiatus, as they start to hope for real progress on the policy front.
But don't worry, you haven't missed much yet. If the plan arrives as expected, there's still a great deal of upside potential to be realized, especially since these same Trump-linked strategies retraced all of their post-election gains - and then some - as investors lost confidence in the president's proposed policies.
Here's a quick primer on what matters to investors:
- The key measure investors are focusing on involves a lowering of the corporate tax rate from 35% to somewhere in the 20% range. Trump has pushed for 15% in the past, but that's being increasingly viewed as unviable.
- Another that's being floated is a one-time repatriation tax holiday for companies holding trillions of dollars overseas. They'd be allowed to bring that cash back to the US at a lower than usual rate. It could spur investment in the US, but it's also very likely to wind up being used to pay dividends and buyback shares.
- Another element that investors could trade on is the ability to immediately expense capital expenditures.
- Though the Trump administration has released outlines of its objectives before, it fell behind schedule in terms of getting a detailed tax cut plan in front of Congress, instead choosing to focus on healthcare. With a healthcare vote now abandoned, the focus is back on taxes.
The two most straightforward Trump trades involve buying stock in two types of companies:
- Those that pay the most taxes and
- Those that hold the most cash overseas. Lucky for you, both Goldman Sachs and JPMorgan have baskets tracking both groups.
For more detail, here's a breakdown of how those two firms, plus two other Wall Street titans, recommend investors play tax reform:
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