Tax bill is finally unveiled: To date, President Trump’s tax plan has only been a framework, with few if any details to chew on, most of them being ideas that corporations and lawmakers would feel comfortable backing. Whenever the White House unveils its tax plan, it’ll affect stocks.
The details: Lawmakers, corporations and lobbyists will fight to preserve tax breaks and push for lower tax rates, all of which would benefit stocks. If the White House disappoints and doesn’t deliver low tax rates and a repatriation holiday, we could see a selloff.
The move to modernize the current tax plan started when the White House passed a budget, including instructions to fast-track a new tax bill pushing $1.5 trillion worth of tax cuts over the next decade. The road to that goal will be filled with a lot of potholes and roadblocks.
Wall Street will watch closely, looking for clues that give investors and traders an idea of what’s ahead.
What to look for: You don’t want to read the 1,000-page tax reform bill, so focus on headlines from major news outlets to get an idea of what’s in it. Don’t factor it into your trading until you know the intricacies of the bill; if politics teaches us anything right now, it’s the danger of guessing how and if news from Washington will play out in the market.
We’ll probably see some near-time volatility in stocks when precise text of the bill is released; if you’re looking for a play on volatility alone, consider the iPath S&P 500 VIX Futures ETN (VXX) or the VelocityShares Daily 2X VIX ETN (TVIX), but tread lightly. TVIX is a leveraged ETN — increasing its potential risk — and both of these exchange-traded notes track the CBOE Volatility Index (VIX) for a one-day period, meaning their ability to track the index — and potentially your desire to hold them — breaks down if you hold them for multiple days.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, using stocks, options and leveraged ETFs.