As the 2024 election approaches, the potential for significant swings in the S&P 500 looms large, with tax policy proposals from presidential candidates poised to impact corporate earnings dramatically. According to a recent report by Goldman Sachs, the direction of U.S. tax policy could cause the S&P 500’s earnings per share (EPS) to fluctuate by as much as 5% to 10%, depending on which candidate’s policies are enacted.
The S&P 500, a benchmark for U.S. stock market performance, is highly sensitive to changes in the corporate tax rate. Goldman Sachs analysts have highlighted that tax policy changes could have profound effects on corporate profitability, which in turn influences stock market performance.
Former President Donald Trump’s proposed tax cuts, which include reducing the corporate tax rate from 21% to 15%, are expected to boost corporate earnings. According to Goldman Sachs, Trump’s plan could lift S&P 500 EPS by approximately 4%. This increase reflects the positive impact of lower tax rates on corporate profits, which often translate into higher stock prices.
In contrast, Vice President Kamala Harris’ tax proposals suggest an increase in the corporate tax rate to 28%. If enacted, this change would likely lead to a reduction in S&P 500 EPS by about 5%. However, Harris’ plan includes additional tax adjustments, such as a higher tax on foreign income and an increase in the alternative minimum tax. When these factors are combined, the Goldman Sachs report projects that the overall impact could result in an 8% reduction in earnings per share for the S&P 500.
The sensitivity of the S&P 500 to tax policy changes is significant, with each 1 percentage point shift in the statutory domestic tax rate potentially altering S&P 500 EPS by slightly less than 1%. This translates to approximately a $2 change in 2025 S&P 500 EPS, demonstrating the substantial effect that tax policies can have on corporate bottom lines.
The potential for such dramatic shifts underscores the importance of the upcoming election on financial markets. Investors and analysts are closely watching the candidates’ tax proposals, recognizing that the outcomes could have far-reaching implications for corporate earnings and, by extension, stock market performance.
As the election nears, the debate over tax policy will likely become a focal point for market participants. The prospect of major swings in the S&P 500 driven by changes in tax policy highlights the interconnectedness of politics and finance, and the importance of staying informed about potential policy shifts and their implications for investment strategies.
