If there’s one thing stock-market investors care about most under President Donald Trump’s administration, it’s taxes—and how soon they’re going to get cut.
In a survey of more than 350 clients and prospective clients conducted in late February, Nicholas Colas, chief market strategist at brokerage Convergex, found that 54% believed that individual and corporate tax cuts were the most beneficial of Trump’s proposed policies for the stock market.
Most respondents — 46% — said the reduction of corporate taxes would be best for the market. Only 18% thought lowering individual taxes was key.
As for other stock-driving policies, deregulation ranked at a distant second at nearly 26%. Less than 1% believed that replacing or repairing the Affordable Health Care Act, or Obamacare, was the most beneficial to stocks.
When do respondents expect a change to the U.S. tax code? Most are willing to be patient for at least two quarters, with 28% responding they expected effective tax cuts in the fourth quarter of 2017. More than 40% of respondents expected tax cuts to go into effect sometime in 2018.
On average, respondents predicted that the Dow Jones Industrial Average DJIA, -0.14% which has gained nearly 15% since the November election, will finish the year around 20,740, or about 1% lower than its current level. Most respondents — 44% — believed that volatility, as measured by the CBOE Volatility Index VIX, +1.87% or VIX, will rise 10% to 25% during Trump’s presidency versus its levels over the past few years.
The VIX is currently hovering just above 11, well below its long-term average of 20. Over the past few years, or 500 trading days, the VIX stands at a moving average of 15.76. A 25% increase to that would place the volatility gauge just below its long-term average.
“Bottom line: the market may prove more patient than many market observers think possible, although our respondents also think volatility will remain muted,” Colas said. “If they are wrong on that last point, all bets are off.”
In light of that, respondents were somewhat split on their largest concern for stocks under Trump. Nearly 32% were concerned that trade or currency issues would become a problem, while 31% believed the inability of Congress to pass any key legislation would be a stumbling block.
More than 80% of respondents said financials, industrials and energy sectors will benefit most from Trump’s time in office, whereas about 70% agreed that the health-care sector would be the most challenged.
So far, financial stocks on the S&P 500 index SPX, -0.29% have gained 24% since the election, while industrials have been the second-best performers with a 13% gain. Over the same period, health-care stocks have slightly underperformed the broader index with a gain of just under 11%.
And as far as media coverage of Trump goes, nearly half of the respondents don’t think any news organization delivered accurate and unbiased coverage of the president and his administration. Financial news organizations fared a little better than general media. Just under 27% of respondents thought news coverage from financial media organizations was fair and accurate.
See answers to the complete survey here.
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