Yes, stocks are pricey. But who cares? You don’t. You’re buying them anyway.
Why?
Because you believe that:
1) Lower taxes and de-regulation are good for corporate profits, and
2) Donald J Trump is a man of his word.
But the S&P 500 is trading at over 17x forward earnings – that’s 13 percent above its long-term average and a 13-year high.
Meanwhile, the Shiller P/E is nearing its 1929 peak level.
So, why are you still long?
Last Thursday, we all got excited when the President said a “phenomenal” tax plan may be released within the next “two or three weeks” – and a tax cut from 35 to 20 percent is truly “phenomenal”, right?
Wrong.
The average effective tax rate for S&P 500 companies that have reported fourth-quarter results so far is just 24.11 percent, according to The Earnings Scout.
Of course, some firms stand to gain more than others. If you break it down by sector, consumer staples and utilities pay the highest rates of tax, while energy stocks get a refund.
So, what about de-regulation? It’s seen as a big positive for financial and energy names, but watch out for the hurdles.
Take Dodd-Frank, for example. Trump has promised to “dismantle” the legislation. However, rolling back the law will require the help of Congress.
Good luck with that.
What’s more, most of the executive orders coming from the White House have been largely symbolic. Can you say travel ban?
Put simply, we don’t yet know if – and when – Trump can deliver. In the meantime, maybe you should stop overpaying?
