It goes without saying that the market has lost faith in Trumpian tax reform.
In fact, if you take even a cursory look under the hood (i.e. if you look a little deeper than the benchmark level), it becomes readily apparent that virtually every Trump trade on the board has been faded pretty aggressively this year.
That’s visible not only in long-term yields and the dollar, but also in the relative performance of various equity baskets. Recall the following charts from Goldman:
The visual in the upper-left-hand corner certainly seems to suggest that the markets are not only less optimistic than they were about the prospects for tax reform, but have now priced it out all together – and then some.
Recall the following from Goldman out last month:
The probability that tax legislation will be enacted by 2018 has fallen further, in our view, as a result of recent events.
In light of these developments, we are changing our fiscal policy assumptions. We already assigned a very low probability to comprehensive tax reform by 2018 but recent events make it even less likely in our view. Our base case has been that Congress would enact a reasonably simple corporate and individual tax cut, with incremental reform—limited base broadening and international corporate reform—that would reduce revenues by $1.75 trillion over ten years.
However, with little evidence so far that Congress is moving in the direction of a substantial net tax cut and the continued focus on revenue-neutrality we have seen from congressional leaders, we have reduced our assumption to $1 trillion over ten years, which reflects an expectation of a tax cut that could be considered close to revenue-neutral under the loose definition that congressional Republicans have been using. This could allow for a modest personal tax cut and, with a few budgetary offsets, a reduction in the corporate rate to 28%. We continue to believe that some type of tax legislation is more likely than not to be enacted in early 2018, but this is also now a much closer call than it used to be, in our view.
Well, in a testament to just how pessimistic folks are getting on one of Trump’s key promises, betting odds show the chances of tax cuts by the end of 2017 have plunged by more than 50% over the past three months.
Have a look:
And because Trump enjoys measuring himself against his predecessors so much, do recall that, as Goldman also noted last month, “President Bush signed his signature tax cut into law on June 7, 2001, and President Reagan enacted his tax cut August 13, 1981.”
The only saving grace for Trump: he’s probably “tired of winning” anyway, so this will be a good breather.
But hey, look on the bright side…