Volatility Ahead In Tax Reform

Remember this post from back in July?  “Caution: Speed Bumps Ahead” 

The items mentioned in that post just months ago sure seem familiar today. This is a fair look at how the cycle of politics is ever-spinning and the effect it can have on the market. In July, the political scene we discussed was health care reform. Fast forward to today, and possible tax reform is on everyone’s mind.

In the most recent weeks, we have seen volatility return mostly due to potential amendments that to the tax reform bill. The House and Senate are talking about different versions, and, in the Senate version, the corporate tax cut could be delayed to 2019, among other changes. (View the diagram to compare tax bills side by side.)

At the same time, many of the largest corporations have released earnings which have been mostly positive. (Review “Why Corporate Earnings Matter” to be reminded about how earnings can bring volatility.)

Remember that the market is forward-looking.  

Investors buy and sell holdings based on where they think future stock prices are headed. Expect this volatility to continue until we have some clear guidance on tax reform or versions that pass with enough votes to take them seriously. We believe if there is tax reform to be made that it will provide changes applicable in 2018.

This is an opportunity to diversify your portfolio by adding investments in areas you need to. As long-term investors, this is a pull back which we haven’t seen in the past year. Stay diversified for the long term even through periods of political cycles that shift continuously.     

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