Wall Street expects the tax cuts proposed by President-elect Trump to drive significant growth in U.S. stocks and corporate earnings in the coming years.
Trump has proposed lowering the corporate tax rate from 21% to 15%. Although this change is unlikely to have as huge an impact as the 2017 tax cuts (when the corporate tax rate was lowered from 35% to 21%), according to analysis from Morgan Asset Management, this tax cut plan could still impact about 145 companies in the S&P 500.
Meera Pandit, the company's global market strategist, wrote in a report: "Of course, domestic income is not a perfect metric as it does not reflect the origin of goods, but it can give a rough sense."
The promise of tax cuts has made Wall Street bulls feel more optimistic, with strategists rolling out higher stock and earnings forecasts in recent weeks.
Goldman Sachs stated that they believe Trump's tax cuts could elevate S&P 500 corporate earnings by over 20% within the next two years. The strategists described Trump's tax reform as posing "upside risk" to their initial earnings forecasts.
Goldman Sachs' forecast for S&P 500 earnings per share for the full year of 2024 is $241, followed by an 11% increase in 2025, and a 7% increase the following year, reaching $288 per share.
"We estimate that for every 1 percentage point reduction in the statutory corporate tax rate, all else being equal, S&P 500 earnings per share will be slightly boosted by less than 1%," the strategists wrote in a recent report. They added that Trump's proposal to relax regulations in the financial sector could also boost corporate earnings growth.
Philip Orlando, Senior Vice President and Chief Market Strategist at Federated Hermes, stated that the proposed tax cuts could push the S&P 500 index to 7500 points by 2026. His forecast implies that the benchmark index will rise by 27% over the next two years.
Philip Orlando added that this also means the S&P 500 is expected to reach 6200 points by the end of 2024. He predicts that Trump's tax cuts and other pro-market policies will benefit the stock market.
He said, "We still have some room for upside," noting that the effects of Trump's tax cuts will take years to fully permeate the markets and the economy. He stated, "The key point is that the rebound the market enjoyed from mid-August or the week after the election seems to be a reasonable response to expectations of stronger economic growth."
Since the results of the U.S. election were finalized, investors have remained optimistic that Trump's policies, including his tax cuts, will boost corporate profits in the coming years. Bank of America data shows that in the weeks following Trump's victory, assets related to the so-called "Trump trade" surged, with large-cap stocks experiencing the largest single-week inflow of funds ever, and financial stocks seeing the biggest inflow in two years.
Article reposted from: Jin Ten Data