Wall Street might be a little too confident in President Donald Trump’s ability to get tax reform done in the near term, analysts at Goldman Sachs said this week.
Goldman noted policy uncertainty is growing as the Republican-led Congress tries to tackle a number of issues, including tax reform, with the House being in session for just 39 days before the August recess.
But the CBOE Volatility Index (VIX), Wall Street’s preferred fear gauge, posted its lowest closing level since 1993 on Monday, as most investors still believe the White House and the GOP will be able to move forward with tax reform. This dichotomy gives Goldman “cause for pause.”
“With much of the optimism priced into the market today hinging on a more complete Washington agenda we note progress may be slow with the House in session for just 39 working days before the August recess,” Boroujerdi said.
Investors have been looking forward to lower corporate taxes ever since Trump’s election. Since Nov. 8, the benchmark S&P 500 index has soared more than 10 percent, pushing it to record levels.
But Wall Street has only received scant clues about what tax reform in the Trump era would look like and how it would be implemented.
Top White House officials released a tax reform outline last month, but did not say how they would pay for the changes. Some officials outside the White House have suggested implementing a border adjustment tax to pay for the reform. The Trump administration has been unclear about its stance on the BAT.
“Further elements of the upcoming tax plan raise questions specifically as it relates to the deduction of state and local taxes where the top 10 states most impacted yields not a single Republican senator but 46 members of the House. We note that is one more than the GOP’s current majority,” Boroujerdi said.