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The relationship between tax reform and the reflation trade

M_RezaFaisal / Getty Images
M_RezaFaisal / Getty Images

U.S. President Donald Trump last week said he will soon make an announcement related to taxes . Our preference for reflation beneficiaries-or assets likely to benefit from rising growth and inflation-isn't contingent on U.S. corporate tax reform. Yet such reform does have the potential to amplify this market theme. The chart below helps explain why.

We see reflation supporting more gains in U.S. small cap stocks. They have a history of outperforming during periods of rising rates, as we note in our Global Equity Outlook . Tax cuts would be an extra boost disproportionally benefiting small caps, given those corporations' higher effective tax rates, as evident in the chart above.

Tax reform winners and losers

Weekly Commentary Richard Turnill is BlackRock's global chief investment strategist. He is a regular contributor to The Blog .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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