Tags: jeremy siegel | trump | tax | reform | earnings | dow | investors

Jeremy Siegel: Trump Tax Reform Will Boost Earnings, Push Dow to 25,000


By    |   Monday, 04 December 2017 08:44 AM

Wharton Finance Professor Jeremy Siegel predicts that President Donald Trump’s sweeping tax reform will boost the Dow Jones industrials to 25,000 and turbocharge corporate earnings by 8 percent.

However, he warns savvy investors that political uncertainty and inflation fears could increase stock market volatility in 2018.

"As we get to these thousands, of course, each is a smaller increment. I think right now, we're only three percent from 25 – the next thousand on the Dow," Siegel said Friday on CNBC's "Trading Nation."

The S&P 500 has risen about 18 percent this year on strong corporate earnings and solid economic growth and also on hopes that Trump’s agenda of corporate tax cuts and looser regulations could come through, Reuters reported.

"The corporate tax cut is particularly what I think the market wants," Siegel told CNBC. That could boost earnings by 8 percent or so, and that's a positive for stocks."

He warns that returns will slow in 2018 to about 5 to 10 percent.

"It's my expectation next year is not going to be anywhere as easy as this year in the markets," he said. "We're moving up to full valuation. It doesn't mean that means there's going to be a break in the market, a bear market or anything like that. But what are you up -- 15 to 20 percent or more this year? That'll be harder to come by in the future," he said.

For its part, the Trump tax-cut reductions will boost economic growth by around 0.3 percentage point for next year and 2019, according to estimates by Goldman Sachs Group Inc.

With the Senate passing legislation on Saturday that matched the House of Representatives in including up to $10,000 in state and local property-tax deductions, that eliminated "the most important political difference between the bills before the conference negotiations start," Goldman economists led by Jan Hatzius in New York wrote in a note, Bloomberg reported.

"We expect the final structure of the bill to reflect more of the Senate bill than the House bill, including a 20 percent corporate tax rate effective in 2019," the Goldman analysts wrote. While that’s down from 35 percent today, considering the expected package more broadly, the effective corporate tax rate will come down by "only a couple of percentage points," Goldman said.

The median estimate of economists surveyed by Bloomberg is for the U.S. economy to expand 2.5 percent next year and 2.1 percent in 2019, after 2.2 percent growth in 2017.

Meanwhile, Siegel also cautioned investors to keep a wary eye on the Federal Reserve.

"Is the Fed going to be much more aggressive as that unemployment rate keeps on going down? Will they have to tighten? And that will definitely put a pause," Siegel said. "How will the Republicans do in the midterm elections? Will they hold the Senate? Will they hold the House? That's why it's more urgent go get what you think is right done now."

To be sure, U.S. stock futures pointed to a solid open for Wall Street on Monday after the U.S. Senate passed its version of a tax overhaul bill, bringing closer to reality Trump’s promise of cutting corporate taxes to spur growth.

The Senate on Saturday approved their version of tax bill in a narrow 51-49 vote. The Senate and House of Representatives will reconcile their respective versions before it becomes a law.

Wall Street indexes ended lower on Friday amid concerns over developments in a probe into Russia’s alleged involvement in the U.S. presidential election.

(Newsmax wires services contributed to this report).

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Wharton Finance Professor Jeremy Siegel predicts that President Donald Trump's sweeping tax reform will boost the Dow Jones industrials to 25,000 and turbocharge corporate earnings by 8 percent.
jeremy siegel, trump, tax, reform, earnings, dow, investors
Monday, 04 December 2017 08:44 AM
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