Would You Trade A 4% Haircut In The S&P’s Fair Value For Sanity?
With expectations for a Democratic sweep becoming more entrenched by the day, market participants with a medium- to long-term investment horizon will continue to focus on the impact of a prospective new tax regime and the extent to which the mechanical hit to corporate earnings will be offset by higher growth engendered by reflationary fiscal policy and a reduction of uncertainty.
The near-term, tactical consideration is whether news of a Democratic sweep would trigger an initial risk-off move
Yes, I would.
Furthermore, having spent several decades in and around Chicago, I am suspect that the 28% would ever be applied across the board. Governmental entities are very adept at reducing or crediting statutory taxes (real estate and income) in exchange for certain behavior that is desired by such governmental entity (could be anything – such as staying domiciled in the US, making capital expenditures, hiring, etc.)
Yeah. I agree. First off, you have to have positive earnings. Then you have to pay the statutory rate like you run a business in a model world. I remember at the time the shouting to lower taxes would save companies so much money. The effective tax rate on companies with positive earnings was already far lower than the existing rate at the time. Another kind of lie and b.s. that we were fed.
Me too, this getting way too old!
Of course you would. Any CFO or CEO worth his or her salt would believe they have the managerial skill sets to minimize the impact on their company and the ability to plan and forecast with higher certainty could easily add 4% to their net after-tax earnings. But overall this is sort of folly, because you can’t totally game the legislative outcome of any national election: Committee chairs change, as do the make up of committees; and the priorities of those leaders change too. Point is, the more certainty about the near and long term future, the better for companies, their employees, and the market.
With the SP500 moving +/- 1% daily, it seems, it is hard to get too exercised by a theoretical -4% impact. That’s less than one P/E multiple point. At the individual stock level, might get exercised in some cases.
Another great piece.
The cynic in me says, and not mentioned above, the C Suite wants lower taxes to increase stock buybacks and bolster their compensation and the value of their stock options rather than anything to do with business investment, innovation, and profitability.
Yes, 4% for sanity and much more for democracy.
“They Live”
https://youtu.be/FJ6gtxUI56o
“Look around at the environment we live in. Carbon dioxide, fluorocarbons, and methane have increased since 1958. Earth is being acclimatized. They are turning our atmosphere into their atmosphere.”
“They are dismantling the sleeping middle class. More and more people are becoming poor. We are their cattle. We are being bred for slavery. We could be pets, we could be food, but all we really are is livestock.”
“The poor and the underclass are growing. Racial justice and human rights are nonexistent. They have created a repressive society and we are their unwitting accomplices. Their intention to rule rests with the annihilation of consciousness. We have been lulled into a trance. They have made us indifferent to ourselves, to others. We are focused only on our own gain.”
~ The bearded man on TV
You’ve said it a bit stronger than I could, but I’m right there with you on the general concept – yes, from the upper middle class on down, the ruling class has striven for decades to create an uneducated (lacking critical thinking) zombie work force to due their bidding for just enough to keep them in their place. And, they have been very successful. The classic american dream is more often found elsewhere.
A lot of people underestimate the economic boost of putting money back in spender’s hands. Eliminating the uncertainty that accompanies the current presidential regime, and yes that adjective is purposeful, promises to enhance the effect. I say, give me the Telly Savalas cut, if it means the madness ends and we have a working formula to rebuild from the current disaster with.
It might also be possible that more than one CEO has held back on CAPEX due to attempted weaponization of the armed wing of the Republican Party (Proud Boys). After all it can be a little difficult to sell Chicken Sandwiches and McFlurries when AK-47’s are rattling off rounds in the streets in front of your business. Not to mention the risk of supplying local gas station with fuel.
I agree with PJSPHD.
Bravo!