Tax Cuts and the Surging Bull Market

The market has been soaring through 2017, and basically since the election, but since the announce of the corporate tax cuts in the recently pass Tax Cuts and Jobs Act, the stock market is showing record growth.  Taking the corporate income tax rate from 35% to 21%, is basically a 40% tax cut to Corporate America. And they are celebrating.  

Individual Tax Relief

The recently passed tax reform was touted throughout the election as something good for Middle-income Americans.  While individual rates will decrease, that is only true in the short term.  Over the next eight years these tax cuts to individuals will slowly erode leaving almost a 53% increase to some when that happens.  

By then the idea is that middle class Americans will be in a much better financial place with higher paying jobs that scaling back the tax cuts little by little won’t matter.  It seems we’ll cross that bridge when we come to it.  

Corporate Tax Cuts Trickle Down?

Some experts feel that US corporations will spend their newly found money on their highly compensated employees with dividends and stock instead of investing into their work force with higher wages.  There has already been an increase in announcements of corporate stock buybacks since the Tax Cuts and Jobs Act was passed.  

We will have to wait and see how much corporate America shares in their tax relief with middle income workers – but one thing is certain, tax cuts to companies is fueling a Bull market with never before seen growth.

How High Will it Go?

When we posted our article, How Long Can the Market Sustain its Low Volatility, last September, we were wondering just how long the market will keep its calm.  Well here we are 5 months later, and we are still wondering the same thing.  This unprecedented surge has market analysts everywhere wondering if it’s soaring too far too fast.  Some fear that we’re in a “melt-up”, which is based on emotion instead of fundamentals, is unsustainable, and is always followed by a melt-down.  

FOMO (fear of missing out) is fueling the emotional rise and appears to be pervasive in the stock market today.   We should not assume that the rally during 2017 and the beginning of 2018 will continue, some experts feel that a correction is long overdue.

The stock market today is more like a stock car on high-octane fuel, and we are all just along for the ride, wondering when we’ll take a pit stop for fuel or if we will just crash and burn.

Great Point Capital specializes in equities and equity options, serving the trading community since 2001.  We have a strong network of experienced and knowledgeable traders actively trading the firm’s capital on the most advanced software platform available.  We are one of the few firms offering access to the Takion platform, enhancing your trading performance.  Contact us today to learn how you can earn your maximum potential in times of high or low volatility from experienced traders with proven strategies.  

Wall Street and Corporate America Biggest Winners of Tax Reform

President Donald Trump has campaigned his Tax Cuts and Jobs Act since the beginning of his election as a change that will benefit middle-income Americans.  While it remains to be seen just how much Main Street USA will benefit from the tax reform, one things is clear – the biggest winners are Wall Street and Corporate America.  

With the reduction in the corporate tax rate going from 35% down to 21% permanently, this essentially gives corporations a 40% tax cut.  There is also a 20% tax deduction for all pass-through companies such as LLCs, Partnerships and S-Corps.

This reduction in income taxed to corporations was the main focal point of Trump’s campaign.  These new corporate tax rates take the tax rate of US companies closer to Canada’s 15% rate, or the rate of 12.5% in Ireland.  For the first time in a long time, corporate tax rate in the US is lower than in Mexico which has a 30% corporate tax rate.  

Relief for American Companies Operating Abroad

When American companies earn money overseas, they will no longer owe taxes on that money.  While this could possibly encourage some companies to keep their profits in foreign lands, there are also incentives to repatriate those profits back to the US.  Under the new tax plan, when money is brought back into the US, corporations will owe tax a rate between 8% and 15.5%, which is quite a bit better than the current 35% tax owed on repatriated funds.  This gives companies incentive like they haven’t had before to bring those funds back into the US to further spur economic growth.  

Apple is the world’s most valuable company, and just recent issued a press release in which they announced they will repatriate funds back into the US generating a tax bill of $38 billion – the largest in history.  Their plan also includes investment into capital spending in the US.  

We have been experiencing the longest period of calm in the market in history, even more so than the mid-90’s.  This is reflective of the excitement which some are calling euphoria driving the market continually upwards.  It seems that Corporate America is voicing how they feel about tax cuts.  

Great Point Capital specializes in equities and equity options, serving the trading community since 2001.  We have a strong network of experienced and knowledgeable traders actively trading the firm’s capital on the most advanced software platform available.  We are one of the few firms offering access to the Takion platform, enhancing your trading performance.  Contact us today to learn how you can earn your maximum potential in times of high or low volatility from experienced traders with proven strategies.  

Surging Market Spurred by Politics and Tax Reform

About a dozen listed stocks started the DOW Jones Industrial Average (DJIA) in 1896, with only one original company, General Electric remaining of the 30 American conglomerates that make up the DJIA today.  In 2015, Apple was added to the Dow, showing that it is no longer just made up of industrial companies.  

The DOW passed its first 1,000 mark after 77 years, and during 2017 passed that five times over, ending 2017 close to 25,000.  It only took one month for the Dow to increase from 24,000 to 25,000.  If you think that’s impressive, how about the mid-Jan rally increasing 1,000 in only seven days?  The stock market is setting new records right off the bat in 2018, continuing with the rally throughout 2017, market watchers are curious if any slowdown is in sight?

The Effect of Politics on Economic Growth

The DOW has risen 7,000 points since the election of Trump, along with Nasdaq which has climbed about 38%, and the S&P has not declined even 3% since the election in November of 2016.  

Individual companies have shown significant growth such as Amazon (AMZN) which has jumped 65%, Nvidia (NVDA) which is a tech company based in CA that has soared 213%, Netflix (NFLX) is up 80%, Best Buy (BBY) is up 90% and Bank of America (BAC) is up 85%.

Corporate Tax Rate Cut Spurs Market Rally

As promised, the Tax Cuts and Jobs Act was passed before the Christmas Holidays, taking the corporate tax rate of 35% down to 21% with no date for expiring.  In addition to the C-Corporate tax deduction, other pass through companies such as S-Corps, LLCs and Partnerships will also get a 20% tax deduction.  

The reduction of 35% down to 21% equates to a 40% tax deduction for large corporations, which has seemed to set the market soaring.  This has been the longest period of calm in Wall St. history, reflecting the excitement of investors.  Strong economic growth at home and abroad will be boosted even further by the GOP tax reform, especially the reduction in corporate tax rate.

Corporate America is making it clear how they feel about tax cuts.  

Check out our post on How Long Can the Market Sustain its Low Volatility, and contact Great Point Capital for all your trading needs.  

Great Point Capital specializes in equities and equity options, serving the trading community since 2001.  We have a strong network of experienced and knowledgeable traders actively trading the firm’s capital on the most advanced software platform available.  We are one of the few firms offering access to the Takion platform, enhancing your trading performance.  Contact us today to learn how you can earn your maximum potential in times of high or low volatility from experienced traders with proven strategies.