The market expects Trump tax reform analysts to warn that failure will lead to a sharp fall in US stocks.
Interface News Nie Lin
Expectations that the Trump administration will pass massive tax reforms have helped drive the US stock market higher since the US presidential election in November. Market attention to tax reform has risen again after the Republican Party released a detailed framework of the tax reform plan at the end of last month. Some analysts warn that if the Republican tax reform plan fails, the US stock market will be hit hard as a result.
Gina Sanchez, chief executive of Chantico Global, a US investment management company, said in an interview with CNBC that the failure of tax reform could lead to a fall of 4-10 per cent in US stocks and a sharp adjustment in earnings ratios.
If the US government fails to pass tax reforms that benefit companies, US stocks will return to a price-to-earnings ratio of 17.5 times earnings, which is a more "sustainable valuation" in the absence of tax reform, given the current economic situation, she said.
The S & P 500 now trades at a static price-to-earnings ratio of 21.50 times earnings per share over the past 12 months and a dynamic price-to-earnings ratio of 18 times forecast earnings for the next 12 months, according to FactSet.
Since November 8 last year, the s & p 500 has risen about 19%, the Dow Jones index has risen about 26%, and the NASDAQ composite index has risen about 27%.
Us Treasury Secretary Mnuchin also warned in a recent interview with the POLITICO Money that US stocks could fall sharply if the tax reform is not passed.
Mnuchin said that the sharp rise in US stocks after last year's election was largely based on the expectation that Congress would pass a massive tax cut bill, and that failure to pass the tax reform would have serious consequences for the market.
"there is no doubt that the rise in the stock market has something to do with our reasonably high expectations of passing tax cuts and tax reform. If we can achieve tax reform, the stock market will rise further. But I think if we don't finish [tax reform], you will see that a large part of this increase will be erased. "he said.
Mnuchin said that if the tax reform is passed, U. S. stocks will be boosted further. According to a report on the US fortune website, Mnuchin's expectation may be reasonable. Goldman Sachs Group sorted out the 50 stocks with the highest tax rates that benefited most from Mr Trump's corporate tax cuts and found that they had risen 17 per cent since Mr Trump's election in November, lagging behind the overall 20 per cent rise in the S & P 500. if the tax cuts are implemented, these companies still have room to rise.
Other analysts say that if Republican efforts are blocked this time, a sharp correction in US stocks will in turn help continue to push Congress to pass the tax reform bill.
"if suddenly the tax reform plan seems to have been killed, the stock market could fall sharply. Then, people will start blaming each other. I think Trump will harshly criticize the Democrats, blaming their intransigence for the market sell-off. Senate Democrats may be shaken by fears of losing next year's election. "said Greg Valliere, chief global strategist at Horizon Investments.
In an interview with POLITICO Money, Mnuchin also said there was "absolute assurance" that the Trump administration would pass the tax reform bill by the end of the year, but analysts did not have high expectations.
Mr Sanchez predicted that the outlook for tax reform was uncertain given the Trump administration's failure to push ahead with health care reform and other efforts.
There has been no unity within the Republican Party on Trump's agenda. So far, unable to get an overwhelming majority of votes, [Republicans] have failed to pass any meaningful reforms. "she said.
"We are hearing more and more CEO scepticism about the passage of large-scale tax reform by Congress, and such concerns have been mentioned in recent financial reports. Sanchez also said.
Terry Haines, an analyst at Evercore ISI, a us investment bank, thinks there is a 55% chance that the tax reform will be passed by the end of this year, and he thinks it is more likely to pass next spring. Goldman Sachs Group believes that there is a 65% chance that the tax reform will be passed in 2018.