Nothing has derailed the markets, reminding us that the economy and corporate earnings are the most important drivers of equity performance. Earnings growth is the driver behind the market’s recent gains. Since June of last year, global markets are up significantly in response to healthy profit growth. Given a backdrop of improving profitability, market valuations appear reasonable. In addition to economic factors, the greatest driver of corporate profitability in coming years could come from tax reform. If tax reform passes as expected, multinationals stand to benefit from the repatriation of trillions of dollars stranded overseas. Smaller companies will benefit greatly as well, as they tend to have higher overall tax rates relative to their larger, more international, peers.
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