Get ready for a 5% pop for stocks?
That is how much the S&P 500 SPX, +0.21% could climb from its current level if the Republicans’ tax-reform push works out, according J.P. Morgan strategist Marko Kolanovic.
The overhaul could add about $ 12 to the S&P 500’s earnings per share, Kolanovic and his colleagues have calculated. At the index’s current price-to-earnings ratio, that would translate to a rise of 8%, they reckon.
“The important question is how much of this 8% is already priced in? We estimate about ~3% is priced in,” the Wall Street strategist wrote in a note dated Wednesday. That “would leave another ~5% upside for S&P 500 if the tax bill is passed.”
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Kolanovic also has suggested that investors are underestimating Republican-controlled Washington’s ability to make it happen.
“Our analysis indicates that the equity market is currently pricing only a ~20-30% probability of tax reform passage, while we estimate the near-term probability significantly higher,” he said.
Other analysts haven’t sounded that upbeat about the overhaul effort. Morgan Stanley strategists have said any legislation that comes to pass wouldn’t be “a game-changer” for near-term U.S. growth prospects, while a Barclays economist suggests the reform is “unlikely to ignite business spending.”
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