Stocks Need Tax Reform Now More Than Ever

Most equity investors I talk to put little hope in the passage of any corporate tax reform in the U.S. Congress this year. Moreover, their confidence that anything will pass in 2018 is dimming. They see more immediate issues, from debt-ceiling and budget debates to providing disaster relief for Texas and almost certainly Florida, as pulling Washington’s attention away from the longer-term necessity of revising the nation’s tax code.

At the moment, market participants don’t seem to care. Corporate profit growth remains strong, long-term interest rates linger near all-time lows, and global economic growth now appears to be synchronized to the upside. Yes, equity valuations feel stretched, but when earnings are high and rates are low, that is hardly a surprising outcome.