Question on Corporate Tax Cuts and the Stock Market

  • Thread starter Thread starter kyphysics
  • Start date Start date
Join the discussion
Registration is free. Start your own thread to ask a follow-up.
Sign up Log in
9 replies · 2K views
kyphysics
Messages
687
Reaction score
446
If corporate tax cuts get rescinded after 2020, does that imply a huge drop in the stock market, because those companies will have higher taxes and less money to "throw around" on stock buybacks?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?
 
Last edited by a moderator:
Physics news on Phys.org

Discussion

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
 
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.
 
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?
 
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.
 
phinds said:
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".
 
  • Like
Likes   Reactions: phinds
DaveE said:
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.
 
phinds said:
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.