As the nation creeps on towards tax reform, many investors find themselves asking what is going to happen. It seems that what was looking like a done deal is becoming more and more uncertain as we get closer to decision time.
CNN reports that:
House Republicans announced late Wednesday night that they would not release their tax reform plan Wednesday, instead punting it a day so that the committee could continue working on the legislation.
This is a telling development, since it was assumed that the GOP had sorted most of its issues over tax legislation last week. This setback opens the door to even more pressing questions; for example, are there still serious disagreement on key issues within tax reform?
Business Insider reports that this uncertainty is being echoed by investors trading patterns:
Investors betting on big changes in the corporate tax code — by buying shares of companies expected to benefit the most — have been burned on this before. So rather than bid up the likely winners, they’re in wait-and-see mode. That’s a change from past behavior. Most notably, in the months immediately after the presidential election, investors piled into the stocks of the nation’s most highly taxed companies. They did it again, though with a little less enthusiasm, in June and September, as the tax plan took priority over a healthcare overhaul.
If professional traders are showing there concern and putting their money where their mouth is, this could be a telling sign of what is to come. Tax reform may end up being more watered down than what was originally thought, with higher than expected corporate tax rates or repatriation taxes potentially hurting the rally.
There is no question that tax reform has the potential to completely change the face of the market. The nature of the current bull market is that it is being pulled forward by the biggest and most valuable companies so any changes to tax reform could stagnate the market. Investors should be on their toes and listen in for any signs of further setbacks for the rest of the week.
To read CNN’s article on the GOP’s tax reform setback, click here.
To read Business Insider’s article on how trading activity is mirroring doubts on tax reform, click here.
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