Tax reform has gone from a market dream to a near reality, and investors are positioning themselves for the road ahead.
Banks, media and transports were the big winners Monday, the first day after the Senate approved its version of the Republican-sponsored plan. Tech stocks took a beating in what could be an ominous sign for the sector, while health care and utilities also fared poorly as investors demonstrated a preference for cyclicals over defensive.
What is in store longer term for the market, though, is cloudier. Multiple factors will come into play, from effective tax rate calculations to consumer impact to how companies will put to use the expected windfall they'll receive from a sharp reduction in their currently highest-in-the-world nominal rates.
"Even after the President signs tax reform into law, company-level implications will remain unclear for quite some time," Jonathan Golub, chief U.S. equity strategist at Credit Suisse, told clients. "The full impact of the new tax code is impossible to calculate given yet unknown behavioral changes."
Still, Wall Street strategists will try to gauge the effects, and had their pencils out again Monday looking to discern where the biggest impacts will fall.