Aurum Wealth Management Blog

Tax Cuts

Tax Cuts: What’s Baked Into Expectations?

A tax cut puts more money in shareholders’ pockets and that is a good thing for company stock prices.  We learn in Finance 101 that good news alone does not make markets go up.  What matters is whether that news is baked into market expectations.  A few months ago, markets were not sure if tax reform would get passed.  The increasing likelihood of Congress working together and continued positive economic data pushed equity markets higher the last several months.

Looking ahead in the U.S., analysts forecast the highest earnings growth for mid-sized companies.  Small caps have the lowest earnings growth expectations, which is surprising considering the domestic economic strength.














Even more interesting, analysts see earnings in the U.S. growing slower than most major markets.  This even included the United Kingdom, wading through “Brexit”.  Japan and emerging markets are on top, with earnings projections of 20% and 18%, respectively.














This comes at a time when U.S. equity markets are priced at the highest valuation levels in the last twenty years, outside of the technology bubble in the late 1990s. Japan’s price to earnings (shown on the right scale because it hit an obscene 80x in 2000!), is near the lows despite its rapid earnings growth.














While confidence is rightfully high in the U.S., abroad we see greater opportunities.  Investors now have the most money in stocks since 1999/2000.  Tilting equity portfolios overseas makes sense today with lower valuations and a greater reward to risk ratio.


This material is based on public information as of the specified date, and may be stale thereafter. Aurum Wealth Management Group has no obligation to provide updated information on the securities or information mentioned herein. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates.

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