Goldman Sachs: Trump's tax cut policy may drive S&P 500 index EPS growth by about 20% in the next two years.

Goldman Sachs released a research report stating that the tax reduction policy proposed by President-elect Trump may increase the returns of the S&P 500 index by more than 20%. The investment bank's strategists believe that the earnings per share of the S&P 500 index is expected to increase by about 20% in the next two years. Goldman Sachs forecasts the full-year earnings per share of the S&P 500 index for 2024 to be $241, with an 11% increase in 2025 and a 7% increase the following year, reaching $288 per share. However, the investment bank stated in a report last Friday that if Trump cuts corporate taxes, these targets may be exceeded, and added that the latest election results have increased the upside potential of their forecasts. The company stated, "Tax reform can bring upside risks. President-elect Trump has been campaigning to reduce the statutory domestic corporate tax rate from the current 21% to 15%. We estimate that, under otherwise identical conditions, for each 1% decrease in the statutory domestic tax rate, the earnings per share of the S&P 500 index would correspondingly have a slightly less than 1% increase." Additionally, measures to relax financial industry regulations could also bring additional benefits. Last Wednesday, after Trump won the election, the U.S. stock market experienced a significant rise. Bank of America stated that traders pumped $20 billion into the U.S. stock market, marking the largest single-day buying spree in the past 5 months, with weekly inflows into financial funds reaching $2.9 billion, the largest single-day fund inflow on record. However, Goldman Sachs stated that Trump's plan to impose high tariffs poses a risk to corporate profits. Its strategists estimate that for every 5 percentage points increase in the actual tariff rate in the U.S., the earnings per share growth of the S&P 500 index components could decrease by as much as 2%. The company predicts that there is a 40% chance that Trump will impose a comprehensive tariff of 10% to 20% on imported goods to the U.S. "During the trade conflicts in 2018-2019, companies were generally able to pass on the tariff costs to customers," the bank's strategist said. "However, even if this situation occurs again, tariffs could reduce earnings through weakening consumer spending, imposing retaliatory tariffs on U.S. exports, and increasing uncertainty." Economists describe Trump's economic plans as inflationary and say that his policies, including his tariff plan, could lead to an increase in interest rates. In the long run, Goldman Sachs expects the S&P 500 index to experience a decade of low returns. Strategists stated in a report last month that part of the reason is the expected rise in interest rates and factors such as high valuations and market concentration.