Earnings matter less than the following five factors, according to Goldman Sachs:
Investors should “focus less on actual 4Q results and more on management insights on how firms are positioned on five policy issues that will drive 2017 earnings revisions and share prices,” say Goldman Sachs strategists, led by David Kostin.
Here is Kostin & Co.’s fab five, as laid out in a “Weekly Kickstart” note:
• Regulation: The Trump administration could change all sorts of rules, and that should help midstream energy companies (Goldman likes Williams Cos.WMB, -0.49% , MPLX MPLX, +0.03% and Enterprise Products EPD, +0.29% ). It also ought to boost banks ( Citi C, -0.47% , PNC PNC, +0.73% and Morgan StanleyMS, +0.55% are Goldie faves).
• Fiscal spending: The strategists suggest big outlays on infrastructure could give only a modest boost to U.S. economic growth, but a yuuge lift to materials providers Vulcan VMC, +1.52% , Summit SUM, +1.80% and Martin Marietta MLM, +0.34% .
• Destination-based border-adjusted tax: This would involve U.S. companies no longer being able to deduct import costs when calculating their tax bases, the Goldman team says. It could mean trouble for Nike NKE, +0.99% , Dollar TreeDLTR, -0.52% , VF Corp. VFC, -0.96% and RH RH, +1.66% .
• Interest deductibility and depreciation policy: Companies with high leverage could be hurt by this, the strategists warn.
• Corporate tax rate: The Goldman team expects the corporate statutory tax rate will drop to 25%. It notes the post-election outperformance by the stocks in its “high tax rate basket,” which is shown below.