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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 called Trump’s proposed corporate tax cuts an upside risk to its profit expectations.
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It said each percentage point cut in the tax rate could boost profits by just under 1%.
President-elect Donald Trump’s proposed tax cuts could boost S&P 500 profits by more than 20%, according to Goldman Sachs.
Strategists at the investment bank argued that earnings per share in the S&P 500 were on track to rise about 20% over the next two years. Goldman’s full-year 2024 forecast for S&P 500 EPS 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 these targets could be surpassed if Trump cuts taxes on corporations, adding that the latest election results had boosted the upside potential of its forecast.
“Tax reform is an upside risk,” the company said. “President-elect Trump has campaigned on lowering the statutory domestic tax rate for domestic corporations from the current 21% to 15%. We estimate that each 1 percentage point reduction in the statutory domestic tax rate would increase S&P 500 EPS by just under 1%, all else equal.” A move to relax regulations in the financial sector could generate additional revenue.
Stock prices rose sharply on Wednesday after Trump secured his second term. Bank of America said traders invested $20 billion in U.S. stocks, marking the biggest one-day stock buying boom in five months, and weekly flows into financial funds reached $2.9 billion, the largest single-day inflow ever.
However, Trump’s plans to impose hefty tariffs pose a risk to corporate profits, Goldman said. The strategists estimate that every 5 percentage point increase in the effective U.S. rate could reduce S&P 500 EPS growth by as much as 2%.
The company estimated the chance that Trump would implement his general tariff of 10% to 20% on US imports at 40%.
“During the 2018-2019 trade conflict, companies were generally able to pass on the costs of tariffs to customers,” strategists wrote, referring to Trump’s trade war with China during his first term. “But even if this dynamic were to repeat, tariffs could potentially reduce profits through weaker consumer spending, retaliatory tariffs on U.S. exports and increased uncertainty.”
Economists have described Trump’s economic plan as inflationary and said his policies, including his tariff plan, are likely to push interest rates higher.
