If a company wants to take advantage of a tax cut, what’s the first thing they do? For starters, they should accelerate expenses and write-offs to maximize the value of deductions while higher rates are in effect. If so, one might expect some low earnings numbers in the coming 4th quarter earnings season. While weak earnings might make sense given tax reform induced accounting, uncertainty is never a good thing for investors. The take is that we might see an increase in volatility if earnings disappoint, leaving investors wondering why.
While tax reform is positive for stocks, the path forward might not be as straight as you think.