Author Topic: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut  (Read 1386 times)

BG2008

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So going from 65% retained earning vs 79% (lowering of taxes from 35% to 21%) equates to a 21.5% additional value to the various companies.  2017 S&P 500 return was 21.8%.  Coincident? 


Liberty

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #1 on: January 18, 2018, 09:12:27 AM »
Quote
Coincident?

Yes, because that's not how the stock market works. But as Buffett explained in his last CNBC interview, it does mean a more valuable economic interest in US businesses for shareholders.

There's a second-level where you have to figure if that economic interest will be mostly kept by shareholders or competed away, though. In some very competitive industries where businesses have no pricing power, I suspect that most of the tax cut will go to customers and not owners.
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rukawa

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #2 on: January 18, 2018, 11:18:56 AM »
If the tax cut works as expected which is to increase employment, wages and investment...it should be bad for stock holders. Seems like more of a Politics thread.

BG2008

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #3 on: January 18, 2018, 12:45:39 PM »
If the tax cut works as expected which is to increase employment, wages and investment...it should be bad for stock holders. Seems like more of a Politics thread.

No political agenda here.  I'm the chump who got left in the dust in 2017 with my large cash holdings.  So trying to reason and learn from my mistake that's all. 

I would say that not all companies deserve to be 21% higher because the ones with no moat don't deserve to trade higher. 

rb

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #4 on: January 18, 2018, 12:55:46 PM »
If the tax cut works as expected which is to increase employment, wages and investment...it should be bad for stock holders. Seems like more of a Politics thread.

No political agenda here.  I'm the chump who got left in the dust in 2017 with my large cash holdings.  So trying to reason and learn from my mistake that's all. 

I would say that not all companies deserve to be 21% higher because the ones with no moat don't deserve to trade higher.
To add a few points. A lot of companies did not pay the statutory 35% so the tax cut will be lower for them. I think some will even pay higher taxes. Also there's a lot of talk of buybacks. If the stock prices are overvalued then buybacks will be value destructive.

rkbabang

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #5 on: January 18, 2018, 01:03:14 PM »
If the tax cut works as expected which is to increase employment, wages and investment...it should be bad for stock holders. Seems like more of a Politics thread.

No political agenda here.  I'm the chump who got left in the dust in 2017 with my large cash holdings.  So trying to reason and learn from my mistake that's all. 

I would say that not all companies deserve to be 21% higher because the ones with no moat don't deserve to trade higher.
To add a few points. A lot of companies did not pay the statutory 35% so the tax cut will be lower for them. I think some will even pay higher taxes. Also there's a lot of talk of buybacks. If the stock prices are overvalued then buybacks will be value destructive.

Of course, but no company needs to buy back overpriced stock, they could pay a dividend instead and let the shareholders spend the money.

rb

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #6 on: January 18, 2018, 01:10:53 PM »
Of course, but no company needs to buy back overpriced stock, they could pay a dividend instead and let the shareholders spend the money.
I agree. Plus dividend increases would make more sense since the cut is not supposed to be a one time gain but ongoing. However they'll still go for buybacks. Lots of buybacks.

rpadebet

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #7 on: January 18, 2018, 08:31:31 PM »
If the tax cut works as expected which is to increase employment, wages and investment...it should be bad for stock holders. Seems like more of a Politics thread.

Why bad?

Increased employment->increased wages-> increased expenses/savings/investments -> increased revenues to corps -> higher top-line growth->higher stk prices at static P/S ratio?

It would be more interesting to see how the US population will choose to spend the "tax-savings" in the aggregate at this stage of the economic cycle. Growth investors can find value in those sectors/companies if they guess right. Given the continuous/durable nature of these tax cuts compared to some of the other temporary ones we had, at this stage of the cycle, I would guess people would spend on cars and such higher order durable goods. Lucky for value investors these also sport some of the lowest PE's with good operating leverage.

To the original point of the thread, there was a global rally in stocks last year. Did everyone think US tax cuts benefit companies everywhere?
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Viking

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #8 on: January 18, 2018, 10:49:59 PM »
Companies who were paying high taxes in the US are immediate big winners; shareholders are also big winners. Yes, some of the windfall may be competed away over time; we will see. In the longer term, this also makes the US much more competitive. All of Trumpís trade rhetoric will also have an effect over time (motivates executives to grow in the US).

If you are a company looking to expand your business the US is becoming a much more desireable country to do business. Lower taxes. Less regulation. Great optics with current administration.

Countries like Canada and Mexico are clear losers. The political risk right now is quite high. What would motivate an executive to build any new factories in Canada or Mexico since the Trump election with all the uncertainty over what the trade agreement will look like between the 3 countries. If your choice of country is close of course you will pick the US.

LC

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Re: 2017 S&P 500 Total Return 21.8% Vs Implied Return from Tax Cut
« Reply #9 on: January 18, 2018, 11:09:23 PM »
If the tax cut works as expected which is to increase employment, wages and investment...it should be bad for stock holders. Seems like more of a Politics thread.

Maybe this topic will 'trickle down' to the politics section.   ;D ;D
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