President Trump’s Tax Reform Shines Up Small and Mid-Cap’s Earnings
$DIA, $SPY, $QQQ, $RUT, $VXX
The Trump led corporate tax cut is helping turn the shares of smaller publicly-traded companies in the United States into an unexpected source of stability.
The shares of small and mid-cap companies in the Russell 2000 (RUT) index are more volatile than the large cap S&P 500, in part due to their concentration on the US economy and smaller financial bases.
The Russell 2000 has held on to more of its gains this year as the big caps consolidated. It dropped just 0.4% from its high on the year Vs 5.5% declinee in the S&P 500.
Money managers and analysts see and are declaring that small companies are benefiting in part from December’s tax cut, which slashed the average tax rate among small cap companies from 35 to 21%.
Large cap companies, many of which are multi-national earn greater percentage of their revenues abroad, saw their effective tax rates fall from 27.5 to 22.5%, according to our estimates.
So far, companies in the Russell 2000 have paid $9.2-B less in taxes this Quarter compared with Q-4 of Y 2017, before the tax bill passed.
That being the case managed money is focusing on small cap financial companies seeing the greatest benefit from lower taxes and low unemployment.
Small companies are also improving their margins too, as they spend less on buybacks and more on reinvesting. Thus providing a fuller cushion for small caps.
The volatility has shrunk trailing P/E valuations by 6% since the Russell 2000 hit a record high in January leaving small caps both cheaper and less risky at a time when companies are growing their pre-tax earnings by an average of 14% Y-Y.
Now, for our growth focused clients, we are looking for areas where there is top-line growth and increased consumption. We have not seen this for several years.
It is clear that The Trump Policies are working in the market and in consumer sentiment.
Thursday, the major US stock market indexes finished at: DJIA +196.99 at 24739.53, NAS Comp+65.07 at 7404.98, S&P 500 +25.28 at 2723.07
Volume: Trade on the NYSE came in at 788-M/shares exchanged
- NAS Comp +7.3% YTD
- Russell 2000 +4.4% YTD
- S&P 500 +1.9% YTD
- DJIA +0.1% YTD
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