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Market Insights / Best of the Blog

Best of the blog: How tax cuts have hit the mark, one month in

By David Russell

This post was originally published on January 22.

President Trump’s “Tax Cuts and Jobs Act” was signed into law one month ago today. So far response has been strongly positive as executives raise wages and predict the measure will lift profits. Today we wanted to recount some of these headlines, especially as quarterly results come out.

First, the impact on earnings:

  • CVS Health (CVS) seems to have been the first major company to react, announcing on Jan. 4 that the new law will increase annual cash flows by $1.2 billion.
  • Walgreens Boots (WBA) on Jan. 8 guided earnings up by $200 million, or 30-35 cents per share, thanks to the law.
  • Delta Air Lines (DAL) hiked its profit outlook by 20% on Jan. 11, with President Glen Hauenstein licking his lips for more business travel.
  • UnitedHealth (UNH) saw a $1.7 billion benefit on Jan. 16, which management said would encourage IT investment.
  • Autonation (AN) on Jan. 16 estimated a $75-100 million improvement in annual net income.

Economists, strategists and other high-level observers have chorused the positive commentary:

  • Federal Reserve officials are more optimistic about the U.S. economy thanks to the tax law. They discussed it at their last Open Market Committee meeting before the bill was signed, although the minutes were released on Jan. 3.
  • The Semiconductor Industry Association said on Dec. 20 called the “long-overdue” move a “a major step toward sustaining U.S. leadership.”
  • Former fast-food executive Andrew Puzder, a long-time opponent of raising the minimum wage, on Dec. 26 anticipated bigger working-class paychecks.
  • Analysts at Bank of America Merrill Lynch predicted on Jan. 4 that transport stocks in particular will find themselves big winners.
  • Barclays on Jan. 5 saw upside for the retail sector — especially Lowe’s (LOW) and Target (TGT).
  • On Jan. 9, JPMorgan Chase (JPM) CEO Jamie Dimon said his own economists were too pessimistic and speculated that growth in the U.S. may accelerate to 4 percent thanks to the reform.
  • UBS said on Jan. 11 that retail giant Wal-Mart Stores (WMT) may use tax savings to lower prices for consumers.
  • Larry Fink CEO of mutual-fund colossus Blackrock (BLK) said on Jan. 12 that the lower tax rates will make the U.S. more competitive than Mexico. His comment came one day after Fiat Chrysler Automobiles (FCAU) relocated production of Ram pickups from Saltillo, Mexico, to Warren, Michigan.
  • Merrill Lynch on Jan. 19 predicted that corporate earnings will go up at least 10% thanks to the new law.
  • Today, Jan. 22, the International Monetary Fund raised its global economic-growth forecasts for this year and next because the Trump-backed policy change will drive business investment.

Despite bullish responses, some companies have taken a near-term hit to earnings. But even those are viewed as positive because they result from a complex accounting loophole that allows them to profit from old losses. Firms on this list include International Business Machines (IBM), American Express (AXP) and General Motors (GM).

Many companies have also boosted wages or bonuses. This list is even longer but some of the big names include AT&T (T), Southwest Airlines (LUV), Fifth Third Bancorp (FITB), Wal-Mart Stores (WMT), M&T Bank (MTB), Comcast (CMCSA), Wells Fargo (WFC), Bank of America (BAC) and PNC Financial (PNC).

Last but definitely not least, tech giant Apple (AAPL) announced on Jan. 17 it will contribute $350 billion to the U.S. economy over the next five years. That includes the creation of 20,000 new jobs.

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