Trump’s coming tax plan: When might it impact markets?
This week U.S. President Donald Trump announced that his administration expected to present a new tax plan to the American people in a couple of weeks. That raises two questions: What’s in it? And when might it be enacted?
On this week’s recap, Chief Investment Strategist Erik Ristuben was joined by Rob Cittadini, regional director, consultant relations, where Ristuben noted that if Trump delivers real corporate tax reform, we should see a positive effect on U.S. earnings. “The problem with it,” said Ristuben, “is that the actual tax reform isn’t two weeks away. Maybe the foundations or the blueprint of a plan is two weeks away.” The projection by Russell Investments strategists is that we won’t see anything substantive on this until the fourth quarter of this year and its real impact might not hit markets until 2018.
There is also disagreement about what makes for good tax policy in the U.S., and the arguments are not just between democrats and republicans. Regarding the potential of a U.S.-Mexico trade tariff, Ristuben noted that a junior republican senator from the state of Georgia “wrote an open letter blasting the border tax yesterday.”
As usual, Russell Investments strategists encourage investors to focus on the fundamentals. Right now, those fundamentals point toward U.S. equities being very expensive. Ristuben noted that Russell Investments strategists are braced for a pullback from the U.S. equity market and that this is one reason we are underweight in U.S. equities in most of our strategies.
A close eye on France
Moving on to Europe, Ristuben laid out the major players in the French election. At the end of the day, the primary concern is whether the far-right candidate, Marine La Pen, gains momentum and potentially moves to exit France from the European Union. Russell Investments strategists still see this outcome as unlikely, but continue to keep a close eye on the situation.
Japan wins the week
Most markets around the world were quiet this week: The U.S. S&P 500,® the European Stoxx® 600 and the Russell® Emerging Markets Index were each up about 0.7%. But Japan gained about 2.4%, as measured by the Nikkei 225 Index. “The economic aspects in Japan are getting less bad,” noted Ristuben, pointing to a rise in consumer confidence and industrial production, as well as a stable earnings season.
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