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Either investors are leaving money on the table or they know something about the corporate tax cuts that the rest of the public doesn't.
CNBC reviewed three baskets of high-tax stocks compiled by three different firms. These are the kinds of stocks that should do very well if corporate taxes are cut to 20 percent as proposed by President Donald Trump. In all three cases, the baskets are substantially underperforming the broader market.
The results create three intriguing possibilities: First, investors are undervaluing the possibility of a tax cut and so there are substantial gains in stocks to be had if the cuts pass. Second, investors don't believe the tax cuts will be good for stocks. And third, investors don't believe the tax cuts will become law.
Whatever the reason, the conclusion is the recent market surge looks disconnected for now from the president's proposal for tax reforms and appears to be trading substantially on other factors, like corporate earnings and the economy.
The underperforming baskets of stocks also appear to be contrary to the declaration last week by Treasury Secretary Steven Mnuchin, who said, "There is no question that the rally in the stock market has baked into it reasonably high expectations for us getting tax cuts and tax reform done."
S&P Global crunched the data on behalf of CNBC and found that the 100 companies in the that pay the highest taxes have returned just 4.8 percent year to date, while the index itself is up more than 14 percent. The bottom 100 taxpaying companies are up 11 percent. But excluding companies that pay no taxes (a group whose outlooks might be negative considering they don't pay taxes), the gain of the lowest taxpaying companies is 24 percent.
That is, it would have been nearly five times better this year to own companies that paid the lowest tax rates than the highest.
"The short of it is that thus far, those companies with the highest effective tax rates have underperformed those with lower effective rates,'' said Michael Thompson, president and chairman of Standard & Poor's Investment Advisory Services. "Maybe people aren't thinking it through."
S&P had previously calculated that a 20 percent corporate tax rate is worth $11.50 to the per share earnings of S&P 500 companies, a roughly 8.5 percent increase just from the tax change. High-tax companies stand to benefit the most from the change, whereas low-tax companies could pay a higher tax bill than they currently do.
Most of the market gains lately have been in growth stocks, Thompson said, and many of those growth stocks represent companies that pay lower taxes.
"There's huge opportunity if you believe that Congress is going to pass some sort of tax bill," said Dan Clifton, head of policy research at Strategas. He says investors have two chances to get it right. Either Congress could pass comprehensive tax reform or it could pass more of a Bush-era temporary tax cut that expires in 10 years. In either case, Clifton said, high-tax companies will benefit.
The Strategas basket of high-tax stocks is performing at about 92 percent of the level of the broader market. While the firm does not release the names of all the stocks in its basket, it includes shares of CME Group, CVS Health, Facebook and Marathon Oil.
The group rose briefly when GOP leaders announced their tax plan last month, but as the market has surged in recent weeks, the high-tax basket deepened its underperformance. Some speculate this could be because of the recent spat between Trump and Tennessee Republican Sen. Bob Corker, which could reduce the prospects of tax reform passing.
Clifton said there's a precedent. He said the market went up with the re-election of President Barack Obama, but the Strategas basket of "Obama stocks," including health care, solar and engineering stocks, underperformed just about until the election. A year after election, it outperformed the broader market by 20 percent.
Jonathan Golub, chief U.S. equity strategist at Credit Suisse, said he doesn't think the market is making a mistake. He says there's concern that a corporate tax cut amid low unemployment could accelerate inflation, bring on more Fed hikes and hasten the end of the expansion.
It could also be, he said, that the market thinks whatever actually passes will be so watered down as to remove any advantage for high-tax stocks. The Credit Suisse high-tax basket is underperforming similar to the Strategas portfolio.
Golub concedes, there is a potential trade there.
"If you believe corporate taxes are going down, you should be levering on this trade so big because there's no value put on it now," Golub said.