Tax maneuver: which companies will win and lose from Trump's reforms

Analysts have assessed how Donald Trump's sweeping tax reforms could affect the financial performance of U.S. companies if the bill, which has already passed the House of Representatives and been sent to the Senate, is passed. Most analysts expect the tax breaks to have a moderately positive impact on the U.S. stock market, reported Reuters. The agency has compiled a list of companies that could feel the impact of the new law.

- Aerospace and Defense Industry. The bill calls for increased spending on air defense, weapons and border security, and the industry will be a major beneficiary, Reuters writes. 

«Defense contractors should benefit from this. The sector as a whole is priced neutral right now, but we can expect positivity in defense,» said Wells Fargo Investment Institute global equities strategist Chris Haverland.

Brian Mulberry of Zacks Investment Management names among the potential beneficiaries one of the world's largest manufacturers of aviation and defense systems RTX, as well as a manufacturer of military equipment, submarines and IT services for the U.S. Army General Dynamics. The iShares US Aerospace & Defense ETF index fund is trading at record highs, Reuters notes.

- U.S. manufacturers supplying the domestic market. The bill includes provisions to extend key elements of the Tax Cuts and Jobs Act (TCJA), which expire at the end of 2025. Among the measures proposed for renewal are 100 percent depreciation of equipment investments, write-offs of internal research and development expenses, and tax relief for borrowers who have taken out business loans. S&P 500 companies with no foreign sales could benefit, according to BofA. Among them are energy sector representatives Alliant Energy, Ameren Corp and American Electric Power.

- Renewable Energy. Shares of U.S. solar-related companies fell sharply on May 22 after it was reported that a bill would eliminate green subsidies introduced under the Joe Biden administration as part of the Inflation Reduction Act of 2022. Companies such as First Solar, Enphase Energy and Sunrun have been in the negative since the beginning of the year.

- Health Insurance. The bill calls for significant cuts in funding for the Medicaid (health insurance for the poor) program. Republicans are pushing for spending cuts to offset tax breaks, Reuters explains. «Cutting Medicaid funding would shift costs to states and local governments. This could lead to losses for hospitals and affect the credit quality of state and nonprofit municipal health care bonds,» Morgan Stanley noted. Investors will be reassessing their exposure to shares of major insurers CVS, Humana, UnitedHealth, Elevance and Cigna. The S&P 500 Managed Health Care index is down 30.6% YTD.

Housing & Real Estate. BofA Global Research believes interest rates will remain high unless the bill addresses the budget deficit, which will negatively impact rate-sensitive companies. At risk are SBA Communications, Equinix and Alexandria Real Estate Equities, BofA said in its survey. «To make housing more affordable, real estate developers will have to cut margins. This is a simple example of how fiscal stimulus can turn negative for the stock market,» said Viresh Kanabar of Macro Hive.

The bill being considered by the Senate would give multinational corporations an extension of tax breaks enacted in Trump's first term in 2017 and set to expire at the end of 2025. It also includes many populist items from Trump's campaign, including tougher immigration policies and the elimination of a number of environmental subsidies.

«Since the 2025 tax breaks essentially just extend the current code, they will give the market only marginal support,» Morgan Stanley said in a note quoted by Reuters.

The Congressional Budget Office estimates that overall the bill would increase the U.S. national debt by $2.4 trillion, bringing it to $36.2 trillion.