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Are Tax Reform Doubts Setting In?

October 29, 2017
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After the markets were pulled upwards by the unexpected explosion in growth from the major tech companies, investors may forget to think about the elephant in the room; the looming tax reform vote.

CNBC reports that:

The House on Thursday narrowly approved a Senate version of the 2018 federal budget, clearing the way for the GOP-controlled Senate to pass a massive set of tax cuts later this year. The vote was a nail-biter, with the final tally 216 to 212. House Speaker Paul Ryan, R-Wis., who typically doesn’t vote on legislation, voted for the budget.

While a tight vote was expected, there were also hopes that the Republican Party would be able to garner more support for the budget. For example, it is very telling that Speaker Ryan was forced to cast a vote; it shows that the party still does not have the utmost confidence that it can count on every member of caucus to fall in line.

The uncertainty is beginning to get analysts thinking about the current state of the market and how it relates to tax reform. In a statement to Reuters, Edward Perkin, chief equity investment officer at Eaton Vance, said:

“The nature of the rally over the last two months has been tax-cut led. If we don’t get a cut then the market is going down”

Reuters also cites a statement by Goldman Sachs from October 20th:

A collapse in the tax measure would likely send the S&P 500 down 5 percent or more,

It is important for investors to think about these possibilities. While the market may be in a tremendous place right now, the market is banking on tax reform to get through. While the GOP may be on track to get it done, you never know what could happen when a party is this divided over policy. Be sure to stay informed.

To read CNBC’s article on last night’s budget vote, click here.

To read Reuter’s article on how the markets would react to failed tax reform, click here.

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