• BCA Research warns that future multi-tax increases could be the next major headwind for equities, with 65% of such packages historically underperforming global stocks by about 6 percentage points over the following year.
  • Despite the warning, Chief Investment Strategist Marko Papic remains constructive on equities, arguing that rising bond yields reflect strong growth rather than an imminent bearish turn.
  • The firm sees the biggest long-term risk from a potential 2027–2029 policy mix involving AI regulation and tax hikes, but no such package has been enacted yet.

Growth Now, Taxes Later

BCA Research is telling clients to stay bullish on equities for now, even as it flags a potentially bigger risk on the horizon: future U.S. tax increases. In a recent note, Chief Investment Strategist Marko Papic argued that the rise in bond yields is not a reason to abandon stocks, because higher yields can accompany strong economic growth and support corporate earnings.

The real danger, according to BCA’s historical analysis, comes when multiple tax hikes are bundled together. The firm found that 65% of such multi-tax packages underperformed, with affected markets lagging the MSCI (MSCI) World index by roughly 6 percentage points over the following year. Papic, who rejoined BCA in 2024 to lead its GeoMacro strategy, has consistently said the firm remains “equity bulls for now,” according to his September chartpack.

That nuanced stance reflects a growing debate on Wall Street: how much fiscal tightening can markets absorb before earnings growth stalls? For now, BCA says the answer is not much—but the timing and composition of any future tax legislation will matter far more than the noise around deficits.

A Fiscal Pressure Cooker

The U.S. fiscal backdrop gives BCA’s warning some teeth. The Congressional Budget Office’s February 2026 baseline projected a $1.9 trillion deficit for fiscal year 2026, equal to 5.8% of GDP, with public debt rising from 101% of GDP this year to 120% by 2036. Rising interest costs account for much of that deterioration. But current policy still leans toward tax relief: the 2025 reconciliation law kept the top individual marginal rate at 37% and provided near-term growth support, though the CBO estimated it would add $4.7 trillion to deficits over 2026–2035.

Tariffs, meanwhile, have emerged as a separate tax-like risk. The CBO projected that higher tariffs would increase inflation relative to its previous forecast and partially offset the growth boost from the reconciliation law. That links tax policy directly to consumer prices and corporate costs—not just government revenue.

For investors, the key distinction is between a broad income-tax increase and targeted measures like tariffs. BCA’s research suggests that a multi-tax package combining several increases would be far more damaging than any single measure.

The Political Path Matters

BCA’s tax concern is not a forecast of an imminent hike. In an October 5 webcast preview, the firm reiterated its expectation of Democratic midterm gains but argued that President Trump would veto market-hostile policies from a Democratic Congress. That distinction matters: a change in congressional control alone would not guarantee tax increases.

Longer term, a separate BCA report preview suggests an AI-related populist backlash could produce bipartisan regulation in 2027 and tax increases from 2029. That helps explain why BCA can be optimistic on equities now while warning about tax risk later.

The firm’s historical finding—65% of multi-tax packages underperforming—should be read with caution. Lagging MSCI World by 6 percentage points does not necessarily mean stocks fell; a market returning 4% while MSCI World returned 10% would still underperform. The statistic also cannot establish causation without knowing the countries, dates, and economic conditions involved.

Investors have not yet reacted strongly to BCA’s specific note, and no new U.S. multi-tax increase package has been enacted as of early October 2026. But with fiscal pressure mounting, BCA’s warning serves as a reminder: the next big stock risk may not come from the bond market—it may come from Washington.

BCA Research did not respond to a request for comment. This article was updated to clarify that the 2025 reconciliation law retained the 37% top individual rate, not introduced a new one.