If the market gets clarity this week on how and when tax reform will play out, some analysts say stocks could be vulnerable to a sell-off.
According to reports this week, President Donald Trump still wants to lower the corporate tax rate to 15 percent, even if it expands the federal deficit. He is expected to unveil more details on the tax plan Wednesday.
Proposed cuts to the high 35 percent U.S. corporate tax rate have been a major factor behind stocks' postelection surge to record highs.
For investors, each 1 percent reduction in the corporate tax rate delivers more than $1 of EPS growth.
Congress isn't expected to vote on tax reform until this summer at the earliest. Prospects for significant change in taxes dimmed when the Republicans pulled their health-care reform bill in March — Trump has wanted to get past health care before addressing taxes.
Lack of political clarity and geopolitical worries have kept stocks in a range since the S&P 500 last closed at a record on March 1. But Tuesday, the animal spirits were back, pushing the Dow Jones industrial average up more than 200 points to above 21,000 in part because of optimism about Trump's tax announcement Wednesday.
Source: Bloomberg
Junior Trader Stefan Panteleev
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