If Tax Reform Fails, Will Stocks Suffer?
If you had to boil down the performance of the stock market over the past year, during which the S&P 500 (SNPINDEX: ^GSPC) has climbed 24%, then you should look first and foremost at the proposed tax reform bill that is making its way through Congress. If the corporate tax rate is cut from 35% down to 20%, as laid out in the version of the tax bill in front of the Senate, corporations will make more money. And if corporations make more money, it should buoy their stocks.
But what if tax reform fails? Does that mean that stock prices will suffer? No one knows the answer to this for sure, but logic would seem to dictate that the answer is yes. I say that because the impact of lower taxes is already, at least in part, seemingly baked into the stock market. If you take it away, then it would seem to follow that stocks would respond by falling.
For investors who are buying stocks today, this is a good thing to keep in mind. You'll want stocks that can not only benefit from a tax cut, which is the case for virtually all stocks, but you'll also want stocks that can weather any correction in the market that could come about if tax reform fails, as was the case with the Affordable Care Act.
Source: Fool.com
