Question on Corporate Tax Cuts and the Stock Market

[kyphysics]

If corporate tax cuts get rescinded after 2020, does that imply a huge drop in the stock market, because those companies will have higher taxes and less money to "throw around" on stock buybacks?

Should people consider selling some of their stocks now for profit before a possible rescind? Thoughts?

 

[Vanadium 50]

Like many of your threads, this starts off with a faulty premise.

Some homework:

• What is the DJ30 market cap? (Hint, about $7.3T)
• How much have buybacks been? (Hint: about $500B is the amount authorized; reality can be no higher than that)
• When you divide the two, what number do you get? (Hint: just under 8%)
• How much has the stock market gone up since November 6, 2016? (Hint: 44%)

Given that, how do you attribute the rise to buybacks? We can repeat this exercise with corporate tax rates if you like. And by "we" I mean "you".

Finally, you seem to imply something unseemly about buybacks. Buybacks are one way of returning capital to those who have invested in the company. What is wrong with that?

PS I forgot to write IBTL

 

[Greg Bernhardt]

This can continue if it's possible without invoking politics.

 

[Vanadium 50]

In addition, the premise assumes that there is some special knowledge about the result of the 2020 election - more than a year away - beyond what is already baked into the market.

 

[DaveE]

Why would you want to ask this in a Physics forum? Do you think we know more about the stock market than anyone else?
Have you heard about the efficient market hypothesis?

 

[phinds]

My previous comment was apparently misconstrued and deleted. What I meant was that betting right now on what will happen based on WHATEVER the election results of the 2020 election is would be a fool's errand.

 

[Vanadium 50]

What I meant was that betting right now on what will happen based on WHATEVER the election results of the 2020 election is would be a fool's errand.

I agree, but the mods seem to have removed that part of the question. I think it substantially alters the question, because as you say, it involved prediction of the outcome of the 2020 election. Sure, if someone would have better predictive ability to the post-election economic landscape than the market as a whole they could make a lot of money, but that's not a very meaningful statement. It's like "only buy the stocks that will go up".

 

[kyphysics]

Why would you want to ask this in a Physics forum? Do you think we know more about the stock market than anyone else?
Have you heard about the efficient market hypothesis?

We discuss all sorts of non-physics stuff here in the General Chat section, Dave. But, no, I don't think you guys know more here. Just asked here randomly.

I don't believe in the efficient market hypothesis, as that would render lots of great value investors' records impossible.

 

[kyphysics]

My previous comment was apparently misconstrued and deleted. What I meant was that betting right now on what will happen based on WHATEVER the election results of the 2020 election is would be a fool's errand.

Fair enough.

Albeit, a lot of great macro investors factor in politics into their "bets."

I was maybe more curious as to what might happen if the tax cuts got rescinded. Logically, it'd make sense that companies would have less money for buybacks that have been supporting stock prices since DT was elected.

 

[Greg Bernhardt]

Politics is banned and appears integral to this discussion, thus it must be closed.