Keith Parker, new UBS chief U.S. neutrality strategist, is looking for the S&P 500 to end next year at 2,900, a healthy capture from its current 2,650 level. But with the right mix of tax law juice, a if it happens can be made where it leaps ahead to 3,300, he said.
The details of a end tax bill are still unclear, but in the House and Senate plans, approved Friday, the corporate tax dress down is reduced to 20 percent from the current 35 percent. Comrades that pay high taxes have been rallying, while those with the hardly ever to gain are getting flogged.
“By our estimate, a tax cut is 20 to 40 percent sacrificed, a little more after today,” Parker said on CNBC’s “Halftime Detail.”
Parker said the S&P 500 could see a 9.5 percent earnings as well from a 20 percent tax rate, and he has not yet priced that into his subject. That could help drive the S&P much higher than his true target of 2,900, even as high as 3,300 — a 25 percent pull away from from current levels.
He said the biggest beneficiaries of lower tax in any events include telecom, financials and consumer discretionary companies, and they typically drink price-to-earnings ratios that are at a discount to the S&P.
Tech has been selling off in up to date sessions and it took the Nasdaq lower Monday, as the Dow and S&P 500 charged to the fore. Parker said semiconductors have been under the most compression because they don’t benefit much from the lower tax rate.
He weighted in tech, services and software should fare better than semiconductors, surprisingly since there is an incentive for corporate capital spending.
“As we’ve been infuriating to digest the details of the House and Senate plans, there are risks enclosing offshore earnings,” he said. Companies will fall under a new territorial tax sketch that does not tax overseas earnings, but the Senate bill includes a tax on abroad income from intangibles.