DB Today -Global/Macro

Global Strategy - Asset Allocation - Binky Chadha

    Sharp equity market reactions this week to changing probabilities of the passageof corporate tax reform reinforce our reading that little or nothing had been pricedin (Tax Reform: With Nothing Priced In How Best To Be Long? Sep 2018). Whileattention tends to focus on movements of the overall market, which was up 1.7%over 3sessions, more notable have been the rotations and divergence across themarket. Our basket of high tax companies was up 4.8% while low tax companiesonly 0.5%. Our current earnings and price targets for the S&P 500in 2018($146and 2850) do not factor in the impact of potential reform. Given the significantlyincreased probability of passage, below we remind what the impacts would be,what now looks to be priced in, and strategies to trade it. The base reform casebelow assumes a cut in the corporate tax rate from 35% to 20% starting in January2018.