Donald Trump has officially been sworn in as president of the United States.
And while Trump’s election sparked a stock market rally that sent the major US averages to new record highs, in recent weeks markets have been more or less flat. The major averages were higher on Friday, but sold off a bit after Trump was officially sworn in. All told though, not a whole lot is happening in markets on Friday.
But now that Trump is president, discussions about what the administration wants to get done are no longer off in the distance. And when it comes to the US economy and financial markets there are really just a few core issues that investors are likely to focus on.
In a note to clients out earlier this month, David Kostin, chief US equity strategist at Goldman Sachs, outlined the five issues that are most important to markets — and S&P 500 earnings — in 2017.
Here’s Kostin:
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Corporate tax rate: Our economists expect the corporate statutory tax rate will be lowered to 25%, around the OECD average but above the Trump campaign (15%) and House Republican proposals (20%). All else equal, a statutory federal rate of 25% would boost S&P 500 EPS by 8%.
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Destination-based border-adjusted tax: Under this system, US firms would bear no tax burden (or a reduced tax burden) for export revenues but would no longer be able to deduct import costs when calculating their tax bases. Our economists currently assign a probability of just 30% that this proposal will be enacted. This is due in part to the potentially difficult transition to such a system, which could prove to be a significant headwind for net importers.
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Interest deductibility and depreciation policy: Changes to interest deductibility and the depreciation of capital investment appear more likely than a change to a destination-based system. However, numerous questions remain about implementation. For example, it is not yet clear whether or for how long interest payments on current debt would be grandfathered.
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Fiscal spending: We estimate that infrastructure spending of $25bn per year (below the $100bn per year outlined in the Trump campaign proposal) would have a modest impact on real GDP growth, increasing S&P 500 EPS by about $1. Our sector analysts expect that construction materials companies would benefit significantly from an increase in infrastructure spending.
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Regulation: The Trump Administration will have discretion in reshaping key regulations. Much uncertainty exists, but banks and midstream energy firms are likely beneficiaries of relaxed regulations.
Following Trump’s election, taxes were an issue that everyone in markets knew would dominate the discussion into 2017.