In Trump's World - Growth is King
Small Cap Equities and a Strong U.S. Dollar will Prevail
January 17, 2016
As we near Donald Trump’s inauguration on January 20th, investors are wondering if the President-elect will successfully tackle his frequently touted initiatives.
In the latest ClearBridge Investments podcast, Investment Strategist Jeffrey Schulze, CFA, outlined his projections for 2017 with Trump in the White House. While the President-elect is expected to push fiscal stimulus in the form of tax cuts, an infrastructure build-out and the reduction of regulations, his most critical policy could be tax reform.
“Tax reforms take much longer to implement than tax cuts, because you have a lot of vested interests involved. There’s going to be quite a bit of lobbying from powerful corporations, because they want to keep their preferential tax treatments and loopholes.”
Schulze reminded listeners Ronald Reagan had won 49 out of 50 states in the election, though it still took him two years to complete the Tax Reform Act. There may be support, but these overhauls can take time.
Schulze said, “Realistically, we’re probably not going to get tax reform until Q3 of next year, and possibly even Q4. Let’s not forget the U.S. isn’t in a recession. There’s no urgency to get money into the hands of both consumers and business.”
Looming tax reform could benefit corporate earnings. Though Schulze expresses caution about the magnitude and timing of tax cuts, he does note that when they do happen there will be a boost to earnings per share.
Schulze continued, “Because of buybacks, because of tax reform, and also because of a stronger global economy, we think revenues and earnings should be going higher in 2017.”
“When all is said and done, I do think value will be slightly more positive than growth at the end of the day. Forming growth, improving inflation trends, and rising commodity prices suggests a continued rotation into value would be rewarded by investors,” said Schulze.
In addition to value, Schulze sees great opportunity in small-cap stocks due to tax reform, a stronger dollar and better insulation from potential trade wars.
He stated, “Most small cap companies have their revenues tied to the U.S. Many of these operators are going to be the biggest beneficiaries of the new tax code, adding more to their bottom line.”
Vinay Nadkarni, Head of the Portfolio Specialists Team at ClearBridge Investments, shares the latest insights from Investment Strategist, Jeff Schulze.
About ClearBridge Investments
ClearBridge Investments is a well-established global investment manager with $112 billion in assets under management as of December 31, 2016. With a legacy dating back over 50 years, the firm’s long-tenured portfolio managers and fundamental research team focus on building equity portfolios for clients who seek income, high active share or low volatility solutions. Owned by Legg Mason, ClearBridge Investments operates with investment independence from headquarters in New York and offices in Baltimore, San Francisco and Wilmington.
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