Trump tax cuts come at the right time for stocks. Further ahead, it gets murky.
Subscribe to enjoy similar stories. For stock markets, the short-term and long-term outcomes of the “Trump trade" won’t necessarily be the same. So far, President-elect Donald Trump’s victory Tuesday has been positively received by investors, as was the case in 2016.
The S&P 500 rose 2.5% to a record close Wednesday, buoyed by Trump’s stated intentions to, among other tax cuts, take the corporate-tax rate from 21% to 15% for companies that manufacture in the U.S. In 2018, after Trump’s first round of tax reductions came into effect, the S&P 500’s earnings-per-share, or EPS, jumped by 21%, compared with an 11% increase the previous year. Much might depend on whether the Republicans win majority control in the House, but some Wall Street analysts think a new wave of tax cuts could boost EPS somewhere between 5% and 10%.
As it turns out, the shot in the arm might come at just the right time to rescue a stock market that was starting to get ahead of itself. Most S&P 500 companies have already reported third-quarter earnings, and 75% of them have done better than analysts were expecting, according to FactSet, which is in line with the 10-year average. EPS are now expected to be 9.6% higher in 2024 than the previous year.
Cracks are nevertheless starting to appear. For one, the S&P 500 has been able to surprise the upside because forecasters had downgraded their projections by 3.6% since the end of the second quarter. This is more than the median of the past decade, which is 3.3%.
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