Highly Taxed Companies Need Trump to Deliver to Justify Post-Election Rallies

  • Goldman index of high-tax stocks has beaten S&P since election
  • Gauge seeing biggest outperformance since 2013 vs. benchmark

To see what’s at stake in the U.S. equity market as Donald Trump prepares for inauguration, look no further than the torrid performance of companies perceived as benefiting most from corporate tax reduction.

Featuring companies ranging from CME Group Inc. to Gap Inc., the group has returned almost double the S&P 500 Index since the election and added $79 billion in value, according to a 49-stock basket maintained by Goldman Sachs Group Inc. The index, which includes companies with the highest tax rates, is coming off its biggest rally relative to the equity benchmark since 2013.

The bulls who have piled into the heavily levied group will now be looking for confirmation the new president will deliver on his proposal to lower the corporate tax rate to 15 percent from 35 percent. The same waiting game has been playing out in a variety of sectors since Election Day as everything from banks to oil drillers have seen once-blistering rallies flatten out in the new year.

Wall Street firms have an eye on policy as they roll out annual forecasts. While Goldman Sachs is broadly bullish on the prospect of a lower tax rate, other issues such as Trump’s proposed border tariff have the bank wary of prospects for sectors like retail. As a result, the firm hasn’t adjusted its projection for S&P 500 profits since the election.

“We estimate the combined tax reform and fiscal policy initiatives of the Trump administration and the Republican-controlled Congress could boost our adjusted 2017 EPS forecast,” strategists led by David Kostin wrote in a client note. Citing a lack of details from the Trump administration, the bank’s decision to stand pat on its forecast is “consistent with elevated policy uncertainty,” they said.

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