US TAX CUTS & its effects in the financial markets


Now with the third quarter reporting season already in the rearview mirror, financial markets have shifted its views to the uncertainty of the US fiscal policy reform proposed by the Republican party.

But, why does the US tax cuts plan affect the financial markets? In my opinion, part of this potential tax cut value is already built in current stocks prices.

Since Trump election one year ago, the market has reacted positively, to the highly populist but difficult to pass, tax plans modifications. In a nutshell, this plan proposes lowering the corporate tax rate from 35% to 20%, doubling deductions and eliminating tax brackets, a positive speech to boost economy, and so far, it has worked. Year to date the S&P500 has grown +15.37%.

So, the crucial question here is whether this tax reform will satisfy everyone in the Congress or it will become a similar nightmare of ongoing negotiations as the Health Care reform? If approved, this will be a huge deal to the financial markets. We will wait and see, so far, the Trump administration has announced they expect a signed bill by the end of the year, a very ambitious deadline.

On Wall Street, the Dow Jones, S&P500, and Nasdaq stock indexes ended the week slightly on a negative trend after the latest news from the tax reform discussion: -0.49%, -0.21% and -0.21% respectively from last Friday. The barrel of crude closes the week at 56.87 dollars per barrel; the yield on 10-year Treasury bonds closes at 2.40%; gold traded at 1,276.00 dollars per ounce and, finally, the euro closes at a rate of 1,17 euros / USD.