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Goldman Sachs says the S&P 500 could see earnings growth of more than 20% over the next two years.
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The bank cited Trump’s proposed tax cuts for corporations as an upside risk to its EPS forecast.
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He said each one percentage point cut in the tax rate could increase profits by just under 1%.
President-elect Donald Trump’s proposed tax cuts could boost S&P 500 gains by more than 20%, Goldman Sachs said.
The investment bank’s strategists argued that S&P 500 earnings per share were on track to rise about 20% over the next two years. Goldman’s forecast for S&P 500 EPS for the full year 2024 is $241, followed by an 11% increase in 2025 and a 7% increase the following year, to $288 per share.
But the investment bank said in a note on Friday that those targets could be exceeded if Trump cuts corporate taxes, adding that the latest election results had increased the upside potential of its forecast.
“Tax reform is an upside risk,” the company said. “President-elect Trump has campaigned to reduce 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 increase S&P 500 earnings per share by just under 1%. Everything else is the same.” A move to relax regulation in the financial sector could generate additional gains.
Stocks rose sharply on Wednesday after Trump won his second term. Bank of America said traders poured $20 billion into U.S. stocks, marking the biggest single-day stock buying boom in five months, and weekly flows into financial funds reached $2.9 billion. of dollars, the largest entry in a single day ever recorded.
However, Trump’s plans to impose heavy tariffs pose a risk to corporate profits, Goldman said. Its strategists estimated that each 5 percentage point increase in the U.S. effective tariff rate could reduce the S&P 500’s earnings per share growth by up to 2%.
The firm put the odds of Trump complying with his across-the-board 10% to 20% tariff on U.S. imports at 40%.
“During the 2018-2019 trade conflict, companies were generally able to pass on the costs of tariffs to customers,” the strategists wrote, referring to Trump’s trade war with China in his first term. “However, even if that dynamic were to repeat itself, tariffs could potentially reduce profits through weaker consumer spending, retaliatory tariffs on U.S. exports, and greater uncertainty.”
Economists have described Trump’s economic plan as inflationary and said his policies, including his tariff plan, are likely to drive up interest rates.