Stocks finished September on a strong note and capped eight consecutive quarters of gains as investors cheered long-awaited details on the Trump administrations tax plan.
Tax cuts would likely boost corporate profits and stock prices, and send interest rates higher. Stocks that are sensitive to economic growth would likely benefit, while sectors like utilities and telecommunications that are sensitive to higher interest rates could face headwinds.
A critical question is whether tax reform can be accomplished given the political environment in Washington.
To that end, Strategas Research tracks a basket of stocks that would benefit from lower taxes. After underperforming for most of the year, these stocks have bounced in recent weeks, as investors become more hopeful for tax reform. Likewise, small caps are sensitive to tax reform and have performed better recently.
Accordingly, we believe some version of tax reform will ultimately be passed, although the legislative road will be bumpy. A meaningful tax reform package should elongate what has already been an extended economic cycle. However, it would also risk the economy running hot, setting the stage for higher inflation and tighter Federal Reserve policy.
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DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.