President-elect Donald Trump’s proposed tax cuts have been a hot topic of discussion, especially in the financial sector. Goldman Sachs recently stated that these tax cuts could potentially boost S&P 500 earnings by more than 20%. This news has investors and analysts alike buzzing with excitement about the potential for increased growth in the market.
Goldman Sachs’ strategists have projected that S&P 500 earnings per share are set to rise by approximately 20% over the next two years. Their forecast for full-year 2024 S&P 500 EPS stands at $241, with an 11% increase in 2025 and a 7% increase the following year, bringing it to $288 a share. However, the bank has suggested that these targets could be surpassed if Trump follows through with tax cuts for corporations. The recent election results have only added to the upside potential of their forecast.
The investment bank highlighted that tax reform is considered an upside risk to their projections. Trump’s campaign promise of cutting the statutory domestic corporate tax rate to 15% from the current 21% is a key factor. Goldman Sachs estimated that for each 1 percentage point reduction in the statutory domestic tax rate, S&P 500 EPS could increase by slightly less than 1%, assuming all other factors remain constant. Additionally, loosening regulations in the financial sector could bring about even greater earnings growth.
Following Trump securing his second term in office, the stock market experienced a significant rally. Bank of America reported a substantial influx of $20 billion into US stocks in a single day, marking the largest stock-purchasing boom in five months. Furthermore, weekly flows to financial funds reached $2.9 billion, the largest single-day inflow on record.
While the potential benefits of Trump’s tax cuts are promising, there are also risks involved. Goldman Sachs cautioned that Trump’s plans to levy significant tariffs could pose a threat to corporate earnings. The strategists estimated that a 5-percentage-point increase in the effective US tariff rate could reduce S&P 500 EPS growth by as much as 2%. They placed the odds of Trump implementing a 10%-to-20% blanket tariff on US imports at 40%.
It is important to note that economists have expressed concerns about the inflationary impact of Trump’s economic plan and his tariff policies. These factors could potentially lead to higher interest rates in the future, impacting the overall market landscape.
As market dynamics continue to evolve under the Trump administration, it will be crucial for investors to stay informed and strategically navigate through potential opportunities and risks. Extreme Investor Network is dedicated to providing you with valuable insights and analysis to help you make informed decisions in this ever-changing financial landscape. Stay tuned for more updates and expert perspectives on key market developments.