Overview: While JPMorgan shares Goldman's view that highly-taxed companies will benefit from the expected tax reform, it's also watching closely for the immediate expensing of capital expenditures (capex). If that were to go into effect, it would benefit asset-heavy industries, most notable energy and industrial companies.
In terms of the previously-mentioned lowering of corporate taxes, JPMorgan estimates that if the statutory tax rate is cut just 10 percentage points to 25%, that would boost the S&P 500's earnings per share by $11.40 to $143.40 — and add more than 150 points to the index, which is fresh off a series of record highs.
And with the stock market serving as a handy signaling device for the likelihood of policies being introduced, JPMorgan also sees areas of the bond market vulnerable to new the repatriation portion of the tax plan.
"Tax reform that repatriates foreign cash and eliminates interest deductibility would greatly reduce US corporate bond supply and should thus on net tighten credit spreads," analysts led by Jan Loeys, the firm's head of global asset allocation, wrote in a recent client note.
Top recommendations:
- Buy stocks of companies paying high taxes
- In the event of immediate capex expensing, buy stocks of companies in asset-heavy sectors like energy and industrials over those in asset-light sectors
- Keep an eye on the potential for tighter credit spreads