Wall Street expects that the tax cuts proposed by US President elect Trump will drive up US stocks and corporate profits for at least the next two years.
Trump's tax cuts will benefit nearly 30% of S&P 500 constituent stocks
Since the election, investors have been optimistic that Trump's policies, including his tax cuts, will surely boost corporate profits in the coming years.
According to data from Bank of America, assets related to the so-called "Trump deal" surged in the weeks following Trump's victory, with weekly inflows to large cap US stocks reaching the highest level in history and weekly inflows to financial stocks reaching the highest level in two years.
Previously, Trump had stated plans to reduce the corporate tax rate from 21% to 15%. Morgan Stanley's global market strategist Meera Pandit wrote in an analysis report that although the magnitude and impact of this tax cut may not be as strong compared to Trump's wave of tax cuts in 2027 (lowering the corporate tax rate from 35 to 21%), his tax plan this time may still benefit about 145 companies in the S&P 500 index, which is equivalent to nearly 30% of the number of constituent companies.
The number of companies expected to benefit from Trump's tax cut plan (data source: JPMorgan Chase)
According to JPMorgan Chase, these 145 companies in the S&P 500 index have actual tax rates exceeding 15% and over 80% of their revenue comes from within the United States, making them the most likely to benefit from Trump's tax cuts. These companies account for 18% of the total market value of the S&P 500 index.
Continuously improve corporate profitability in the next two years
In recent weeks, several Wall Street giants have raised their expectations for the US stock market, and tax cuts are a major positive factor they will all mention.
Goldman Sachs stated that it believes Trump's tax cuts may increase the corporate profits of S&P 500 companies by 20% over the next two years, posing an "upward risk" to their initial profit forecasts.
Goldman Sachs predicts that the full year earnings per share of companies in the S&P 500 index will be $241 in 2024, an increase of 11% in 2025, and another 7% in 2026, reaching $288 per share.
They wrote in the report, "We estimate that, all other things being equal, for every 1 percentage point decrease in the US domestic statutory tax rate, the earnings per share of S&P 500 index constituents can achieve a slightly less than 1% increase
Philip Orlando, Senior Vice President and Chief Market Strategist of Federated Hermes, a veteran asset management giant, said that the proposed tax cuts could push the S&P 500 index up to 7500 points in 2026, meaning they expect the index to rise 27% in the next two years.
We have more upward momentum, "he pointed out, noting that the impact of Trump's tax cuts may take several more years to fully manifest in the US market and economy.