How to trade Trump's tax reform

The Trump Tax Plan is approaching, and companies are far from being the only ones to take advantage of this.

Traders will also emphasize the so-called Trump Trade. Here's how to take advantage of this:

First, we need to focus on Trump Trade by seeing which areas will benefit most from the reform of the pro-business president.

Here's a quick look at what's important to investors:
- The main reason investors will monitor is the tax rate, which is expected to drop from 35% to around 20%.
- The other important point is repatriating the profits of US companies outside the US. According to Trump, they should be allowed to return their money to the country by paying a preferential tax rate.
- Another element that investors can trade is the ability to spend capital costs immediately.

The two main trades today will be for the shares of companies that:

- They pay the highest taxes
- And those who hold the most money abroad.

Here is the opinion of top Wall Street players

Goldman Sachs Part 1:

The chart above shows a basket of 50 companies that pay high taxes across industries across the US.

After a gradual increase after last year's election, the index wiped out all its profits against the broader market by mid-March. Now, against the backdrop of rising optimism about tax relief, the index has grown in recent weeks.

Top recommendation for a deal: Find out which companies pay the highest taxes and make a purchase before the tax reform enters into force.

Goldman Sachs Part 2:

The graph above shows another Goldman index, which contains the highest earning shares from abroad. After the initial decline, the companies recovered, and are currently trading on a speculation boost.

It's a recommendation for a deal: Find out which companies are holding the most money abroad and make a purchase before the law enters into force. Such companies are common in the technology sector, such as Apple and Google. Healthcare also offers good opportunities for a trade.

JP Morgan:

JP Morgan does not deny Goldman's views, but the bank focuses on spending capital. If this relief comes into force, the strongest growth will be observed for energy companies and heavy industries.

As regards corporate tax cuts, JPMorgan estimates that if the statutory tax rate is cut by only 10 percentage points to 25%, it will increase S & P 500's revenue by $ 11.40 to $ 143.40. This, in turn, would add more than 150 points to the index.

Bank of America Merrill Lynch

Bank of America Merrill Lynch focuses on the analysis of small capitalization companies presented by the Russell 2000 Index. After the initial US-run growth, small cap stocks adjusted and now provide a good opportunity for purchases amid a restoring confidence in the Trump reform.

Bank of America Merrill Lynch's recommendation is to buy call options on the index.

Citigroup

City are focusing on the repatriation of profits abroad, believing that the best trades will take place in the shares of the companies that spend the most money on redemption. Citigroup estimates that US corporations hold huge sums of about $ 2.5 trillion abroad, a value that will surely support the stock of companies with a strong buyback policy.

Source: Bloomberg Pro Terminal

Jr Trader Petar Milanov

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