Trump 2.0: Who Are Potential Tax-cut Beneficiaries?

With Donald Trump's return to the presidency, Wall Street is bracing for the likelihood of tax-cuts. Trump emphasized tariffs and tax reductions as central components of his electoral platform. He maintained a strong focus on tax policy, similar to his previous term, but with an even more radical approach.

Trump's proposed tax policy can be described as "raising tariffs and lowering domestic taxes." During his campaign, Trump pledged to uphold the 2017 tax reform, known as the "Tax Cuts and Jobs Act," which substantially decreased personal and corporate income taxes, notably reducing the corporate tax rate from 35% to 21%.

While campaigning, Trump advocated for a further decrease in the corporate tax rate from 21% to 15%, stating that this reduction would apply to firms manufacturing products within the U.S. He aims to revitalize American manufacturing through favorable tax policies.

JP Morgan noted in a recent report that the proposed cuts are not universal but are aimed specifically at domestic producers, highlighting the significance of the domestic revenue percentage in identifying potential beneficiaries. Furthermore, considering the global operations of many U.S. corporations, the already low effective corporate tax rates might see minimal impact from the reductions.

JP Morgan categorizes S&P 500 companies with effective tax rates over 15% and more than 80% of revenues domestically, primarily within the Financials and Industrials sectors, followed by Consumer Staples, Consumer Discretionary, and Health Care.

Chris Senyek, chief investment strategist at Wolfe Research, wrote in a report Monday that "given the GOP trifecta, " investors should expect that lower corporate taxes will boost earnings for the S&P 500. He and his team said companies in the Industrial, Tech, Consumer Staples, Materials, and Healthcare Equipment sectors could benefit the most.

Jay Hatfield, CEO at Infrastructure Capital Advisors, stated in a report that "Corporate tax rates have a 60% correlation with global economic growth, and corporate tax cuts are the most effective means of boosting national economic growth." Following Trump's nomination of Scott Bessent as Treasury Secretary, Hatfield adjusted his 2025 S&P 500 target from 6,600 to 7,000, anticipating an 18% corporate tax rate. Should Trump and Bessent achieve a 15% rate, the S&P 500 could reach 7,500 next year.

Goldman Sachs strategists believe reducing the corporate tax rate to 15% could increase S&P 500 earnings by about 4%. Jake Seltz, a portfolio manager at Allspring Global Investments, commented, "In the short term, equity investors will likely view a Trump victory positively due to the potential extension of current tax reductions."

However, such tax cuts would require Congressional approval, and widespread tax reductions could raise concerns about increasing U.S. debt, especially with growing investor focus on the federal deficit. According to an October 28 estimate from the Committee for a Responsible Federal Budget, a budget-focused think tank, Trump’s tax and spending plans could increase the national debt by $7.75 trillion over the next decade. This suggests an active approach to identifying potential beneficiaries while maintaining a comprehensive focus on equity fundamentals.