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Tax Update: How tax cuts mislead equity investors
- February 1, 2025: Vol. 12, Number 2

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Tax Update: How tax cuts mislead equity investors

by John Fogarty, Chris Kotowicz and Adam Yee

The prospect of corporate tax cuts put a brief charge into the U.S. financial markets following the November election of Donald Trump as U.S. president. This short-lived “Trump trade” saw the Dow Jones Industrial Average notch its biggest one-day gain in two years, while the S&P 500 and tech-heavy Nasdaq indexes also climbed to record highs. The bump at least in part reflected investors’ expectations for corporate tax cuts under a new administration that would conceivably boost corporate earnings. But tax cuts don’t affect companies equally, and we believe investors should spend more time focusing on business models than tax regimes.

We’ve been here before. After President-elect Trump’s first victory in 2016, stocks rallied on hopes for corporate tax cuts. Eventually, the Tax Cuts and Jobs Act (TCJA) of 2017 lopped the top corporate income tax rate from 35 percent to 21 percent. This sweeping tax overhaul also repealed the corporate alternative minimum tax, ac

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