Earnings Boom Ahead: Trump’s Tax Cuts Could Spark 20% Growth
The stage is set for a remarkable earnings surge in the S&P 500, with Goldman Sachs predicting a staggering 20% growth over the next two years. The driving force behind this optimism? President-elect Donald Trump’s proposed tax cuts for corporations.
A Tax Cut Windfall
Goldman strategists believe that each percentage-point reduction in the corporate tax rate could translate to a nearly 1% boost in earnings. With Trump aiming to slash the statutory domestic corporate tax rate from 21% to 15%, the potential upside is substantial. This could lead to a significant surge in S&P 500 earnings per share, with Goldman forecasting $241 for full-year 2024, followed by an 11% increase in 2025 and a 7% increase the following year.
Regulatory Relief: An Additional Earnings Boost
Furthermore, a move to loosen regulation in the financial sector could bring additional earnings growth. The prospect of deregulation has already sparked a stock market rally, with traders pouring $20 billion into US stocks in a single day – the largest influx in five months.
Tariffs: A Dark Cloud on the Horizon
However, Trump’s plans to impose hefty tariffs pose a significant risk to corporate earnings. Goldman estimates that each 5-percentage-point increase in the effective US tariff rate could reduce S&P 500 EPS growth by up to 2%. The firm puts the odds of Trump following through with his 10%-to-20% blanket tariff on US imports at 40%.
Inflationary Concerns and Long-Term Outlook
Economists have warned that Trump’s economic plan could be inflationary, leading to higher interest rates. Over the long term, Goldman is predicting a decade of lackluster returns for the S&P 500, citing factors such as higher interest-rate expectations, stretched valuations, and high market concentration.
Despite these concerns, the potential for earnings growth remains strong. As Trump’s policies take shape, investors will be watching closely to see how they impact the market. One thing is certain – the next two years promise to be an exciting ride for the S&P 500.
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