Investors Assessing Micro Impact as Tax Bill Passes

By Joyce Yu

Philadelphia, PA–World markets offered a muted reception on Thursday to the passage of U.S. tax cuts as potential benefits to company bottom lines were already priced in. With U.S. President Trump expected to sign the bill before Christmas, analysts, investors and companies are examining carefully the details of the tax bill and how they are going to impact businesses.

Undoubtedly, lower taxes mean higher earnings and higher earnings which will drive stock prices higher, but how it affects individual companies is not yet known.

“It feels like the macro is priced in, but the micro isn’t,” Nicholas Colas, cofounder of DataTrek, a research firm, shared with the Financial Times. “The macro is priced in because the expectation for tax reform started the day after the election and got factored into stock prices over the last 12 months.”

Such a complex overhaul with so many countervailing forces — a tax cut but also changes to how companies can deduct interest on debt and expense spending — may take “days, weeks or months” to assess for individual companies and investors that buy and sell their shares, Mr Colas says.

Research firm FactSet keeps its corporate earnings projections for 2018, where profits per share are seen rising 11.4%, according to the Financial Times.

“Most analysts may wait until the fourth-quarter earnings season in January to revise their estimates, as companies will likely provide more commentary around the tax changes then,” says John Butters, a senior earnings analyst at FactSet.

While corporate tax rate is lowered to 21% from 35%, companies pay different effective rates and multinationals that have cash flows in different countries with different tax regimes generally pay a lower rate. Therefore investors shouldn’t assume companies will all benefit to the same extent

For instance, financial firms and small-cap stocks that pay high effective tax rates set to become bigger beneficiaries of the bill. At the same time, technology groups are known for holding large amount of cash overseas, thus lowering their tax rates. Among tech firms, Apple would reap the most benefits comparing with its peers like Amazon, Facebook and Netflix,, according to a Financial Times report.

It remains however yet unclear which companies may bring back money and what they will do with it — capital expenditures, stock repurchases and M&A are all possibilities.


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