What Corporations Did With Their Tax Cuts

There were a few major topics identified when we first set out to analyze the effects of the 2018 tax bill. The link to the original post can be found (here).

One major topic was how corporations would handle the extra cash coming their way. One year out, we have some evidence as to know their behavior. A recent Bloomberg story identified analysis by Citigroup that showed corporations have spent more on stock buybacks than on capital expenditures (story here). This is the first year since 2007 that this has happened. 

We mentioned in our original post how wages, stock buybacks, dividends, and capital expenditures would show the intentions of the executives of US corporations. Here is some data

- Wages grew 3.2% in 2018. That is the highest annual gain in a decade. CNBC story here.


- Stock buybacks increased to over $800 billion. That is an increase of 60% over the 2017 total of $500 billion. This happened with a stock market that ended the year 5% to the downside. (Bloomberg)

- Capital Expenditures increased $100 billion from $600 billion to $700 billion.  (Bloomberg)

- Dividends increased 10% to $450 billion from $400 billion in 2017 (Bloomberg)

These numbers tell a strong story about how corporations used the extra revenue from the tax cut. It is not a healthy story. A higher than normal percentage was dedicated to buybacks. On the one hand, having that as the reason for rising earnings and stock prices is not a long term recipe for success for investors. Corporate America used the tax cut to buyback stock to boost earnings per share that inflated bonuses while wage growth was a paltry 3%. On the other hand, it is positive news for all those execs whose bonuses are tied to earnings. It also stemmed the slide in the stock market.

Corporate America needs to take the infrastructure opportunity coming and invest those tax dollars in its employees and products.  


** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

Here Come the Earnings (Part 3 of Tax Bill Outcomes)

by Michael Keane

This is Part 3 of the "Tax Bill Analysis" series. It will focus on the support it will create for corporations earnings levels and the stock market as a whole. Please read parts 1 (link here) and 2 (link here) if you haven't already.

The recent tax is about to show its true worth to the economy. That is because it is about to show up on the balance sheets of US corporations. The first earnings cycle is going on in report after report, the one common theme is how much better earnings will be because of this new tax bill. From the banks like JP Morgan or Bank of America, to energy companies like BP or Shell, to tech companies like Apple or Microsoft, this bill is one big windfall. This one of the main reasons why corporations spent millions of dollars lobbying for this bill. It literally means billions of dollars for them and their shareholders. Per disclosure, through retirement funds and partners, some of KeaneVCC's money is invested in shares of these corporations.

This buffer or ignitor for earnings also will have an effect on the market as a whole. PE, or Price to Earnings ratios will drop because of the raised earnings. This puts stock prices at a cheaper level in terms of value. It could either send the market higher, or at the very least buffer any normal drops or corrections seen in the market.

 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**