A stripped-down Trump tax plan is still a boon for America: trader

Alan Valdes
·Alan Valdes

By Alan Valdes, director of floor operations at Silverbear

The tax plan promised to Americans—and one of the driving forces that got Donald Trump elected President Trump—was finally unveiled yesterday when Treasury Secretary Steven Mnuchin stepped to the podium and proposed massive tax cuts. Indeed, if the plan passes as-is (and that’s a big “IF”), it would be the biggest tax cut, for both individuals and corporations, since the 1980s when Ronald Reagan unveiled his tax plan.

The planned tax overhaul would be one of the biggest booms to Wall Street in recent memory. Taking the corporate tax rate from 35% to 15% and giving a cut to “pass-through” businesses (which encompasses many small businesses) will keep the Russell 2000 (^RUT, IWM) on a roll. Just a 1% drop in the tax rate will increase earnings per share for a S&P 500 company by $1.35. In real numbers, for a company such as Berkshire Hathaway (BRK-A), taking the rate to 15% would add $39 billion to their book value.

Source: Flickr.com
Source: Flickr.com

You may be asking, “Why didn’t the markets rally triple digits with all the great news?” There are a couple of reasons. The tax plan has been rumored and leaked since the election, and it’s one of the reasons Wall Street has been rallying since November. Anything less that a 15% rate cut would have been a disappointment to some degree. Also, as with most of Trump’s plans, it was light on specifics. Traders also probably realize that the hardest part of this proposed tax plan starts today: getting it through Congress. Even if it turns out that this is only a starting point—should they knock it down to 20% and have only 3 brackets, doubling the standard deduction—this would still be a boon, not only for Wall Street, but for Main Street.

With all the hoopla over the tax cuts now in the rearview mirror, let’s get back to what’s been driving the market as of late. Today we get the mother load of tech earnings reporting after the bell: Amazon (AMZN), Google (GOOGL), Intel (INTC) and Microsoft (MSFT). Combined, these four companies’ market caps top $1.7 trillion, helping to make this the biggest earnings day of the quarter. It’s been the tech sector leading this rally and taking the Nasdaq (^IXIC) to new highs. And traders are expecting a good day for the Four Horsemen.