Top 4 Post Trump Win Takeaways
By: Ryan Fulmer
Wednesday, November 9, 2016
1. Changes to Interest Rate Policy: The Federal Reserve, which is the government body responsible for setting interest rates, is currently chaired by Janet Yellen, and her term is set to expire in February 2018. We expect that in the middle of 2017, President-elect Trump will not extend her another term and will select a Chairman who will focus more on rules-based monetary policy (or the unemployment rate and inflation rate).
Takeaway: Future interest rate policy decisions are likely to be more hawkish (or anticipatory of greater inflation), which will increase uncertainty. The policy change could be the tipping point in the bond market sell-off we have been anticipating for several years.
2. Changes to Consumer Taxes: President-elect Trump has promised widespread consumer and corporate tax reform. We anticipate Trump will rely on the House GOP blueprint, which his campaign plan closely matches. His proposal flattens the tax code with fewer and lower brackets.
Takeaway: Tax cuts should increase discretionary income, which will help domestic consumer-oriented retailers and restaurants. Lower marginal tax rates will weigh on municipal bond prices, which may also be affected by increased municipal supply down the road to fund infrastructure spending.
3. Changes to Corporate Taxes: President-elect Trump’s initial proposal argued for a reduction in the corporate tax rate from 35% to 15% -- in a vacuum, reported profits would grow 30% due to this adjustment. Companies with high effective and cash tax rates that are domestically oriented will likely benefit the most. A few companies that meet this criterion include: Comcast Corporation, United Parcel Services (UPS), Lowe’s Corporation, American Express, Waste Management, and Automatic Data Processing (ADP).
4. Changes to Corporate Taxes – Repatriation: The United States has the highest marginal corporate tax rate in the world at 35%. High U.S. tax rates encourage companies to keep profits abroad in order to avoid paying U.S. taxes. Trump’s campaign plan would make all profits subject to US tax without a deferral (the loophole that allowed companies to keep profits abroad without taxes), and companies would be required to repatriate all profits at a rate of 10% that could be payable over 10 years.
Takeaways: About 25 companies will be the most impacted by repatriation, and 80+ companies represent 75% of the untaxed profits overseas. Some of these companies include: Microsoft Corp., General Electric, Apple, IBM, Google, Johnson & Johnson, and Exxon Mobil.
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