Thursday, 23 February 2017
Trump’s Tax Reform: Sell or Buy?
Yes. Markets are still moving up and if there one reason behind this positive trend is President Donald Trump’s recent promise to unveil a long-awaited tax reform.
"We're going to be announcing something I would say over the next two or three weeks that will be phenomenal in terms of tax and developing our aviation infrastructure." said Trump on Feb 9.
But not everything is as clear as it seems. While there are still those believing that the reform would be great for business and individuals, there is an increased number of analysts pointing that the tax plan could actually turn into a sell event. Why? Speculation.
That’s right. You’ve heard me. Speculation. In the last two weeks, investors have been buying consistently on expectations that Trump’s reform will reduce the tax burden on American customers and business. However, will it actually do that?
Taking a look at the S&P 500, it’s said that for each percentage point ripped from taxes, the index only adds nearly 1.30 dollars to total annual earnings. In other words, don’t be so sure this tax reduction will have such a positive effect on the economy.
Also, keep in mind that US equities have been growing on the basis of this event, so… a confirmation will provoque a moderate movement but don’t expect too much out of it. After all, it’s all been kind of anticipated by traders.
If market participants start to analyze the true impact of this tax reform, then it will automatically change into a “sell-the-news” event. Right! That same old phrase: “buy the rumor, sell the news” but well… nobody has a crystal ball here and after all, it’s your own judgement which counts.
Trump’s Tax Plan Preliminary Details:
- Single citizens that make less than $25,000, or married couples that jointly make less than $50,000 will be excluded from income tax.
- Families will be exempt of death tax.
- Americans who classified for income tax will pay according a simplified tax code: 0%, 10%, 20% and 25% depending earnings.
- No business of any kind will pay more than 15%, making it easier for startups and big corporations to scale up, hire more people and invest more in the country.
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