Trump's tax cuts could boost S&P 500 earnings by 20% over the next 2 years, Goldman Sachs says

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• The S&P 500 could see more than 20% earnings growth over the next two years, according to Goldman Sachs.
• The bank highlighted Trump's proposed tax cuts for corporations as an upside risk to their EPS forecast.
• Each percentage point cut in the tax rate could boost earnings slightly less than 1%, Goldman estimated.

President-elect Donald Trump's tax cuts could boost S&P 500 earnings by more than 20%, Goldman Sachs said.

Strategists at the investment bank predicted S&P 500 earnings per share were on track to rise around 20% over the next two years. Goldman's forecast for full-year 2024 S&P 500 EPS is $241. That will be followed by an 11% EPS increase in 2025, and 7% EPS increase the following year to $288 a share, Goldman said.

Yet, those targets could easily be surpassed if Trump slashes taxes for corporations, the investment bank said in a note on Friday, noting that the latest election results had increased the upside potential to their forecast.

"Tax reform is an upside risk. President-elect Trump has campaigned on cutting the statutory domestic corporate tax rate to 15% from its current 21%. We estimate that each 1 percentage point reduction in the statutory domestic tax rate would boost S&P 500 EPS by slightly less than 1%, all else equal" the firm wrote. Trump's move to loosen regulation in the financial sector could also bring additional earnings.

Stocks rallied sharply after Trump secured his second term in office on Wednesday. Traders poured $20 billion into US stocks the day Trump's election victory was confirmed, marking the largest single-day stock-purchasing boom in five months, Bank of America said. Weekly flows to financial funds, meanwhile, hit $2.9 billion, the largest single-day inflow on record.

Trump's plans to levy hefty tariffs, though, is a risk to corporate earnings, Goldman Sachs said. Each five percentage point increase in the effective US tariff rate could reduce S&P 500 EPS growth by as much as 2%. the strategists estimated.

The firm pegged the odds that Trump would follow through with his 10%-20% blanket tariff on US imports at 40%.

"During the 2018-2019 trade conflict, companies were generally able to pass the costs of tariffs through to customers," strategists wrote, referring to Trump's trade war with China in his first term. "However, even if that dynamic were repeated, tariffs could potentially reduce earnings via weaker consumer spending, retaliatory tariffs on US exports, and increased uncertainty."

Economists have flagged Trump's economic plan as inflationary and said his policies, including his tariff plan, are likely to send interest rates higher.

Over the long term, Goldman is calling for a decade of lackluster returns for the S&P 500. That's partly due to higher interest rate expectations, strategists said in a note last month, as well as factors like stretched valuations and high market concentration.

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